Wednesday, June 17, 2009

Prices still appear not to be low enough for consumers

Core CPI monthly change of 0.1% was in-line with the consensus, however, surprisingly, higher energy prices did not impact overall CPI, as that also came in at 0.1%. We think this is simple:

  • Consumer demand remains low enough for producers not pass on any increase in their costs
  • What appears to be a never-ending attempt to clear inventories by producers and retailers, appears to be ... never ending, which further holds prices down.
  • Although we still expect inflation to hit the economy within the next 1-3 years, it appears that prices have not yet adjusted to the plummeting demand. Looks like from a pricing standpoint, we might experience both deflation and too-high inflation in a record 6-12 month period.

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