Another Round-Trip in Crude; Search for Inflation; Another Bout of Asset Deflation Hell Coming Up

Crude prices are back to where they were in 2004. Before that, crude previously topped near $41 in September of 1990!



Recall the hyperinflation talk in June of 2008 when crude hit $147?

Cries of massive price inflation again became talk of the town when crude rebounded to a secondary high of $115 in April of 2011.

It's been yet another round trip in crude.

CPI Barely Positive

Today the BLS reported CPI for All Items Rises 0.1% in July as Shelter Index Increases.

The Bloomberg Consensus was for a 0.2% rise.

Inflation wasn't brewing in July and with oil prices moving lower, inflation may not be showing much pressure in August either. The consumer price index rose only 0.1 percent in July as did the core, both under expectations. Year-on-year rates show slightly more pressure. Overall inflation is up 0.2 percent, which is very low but up from 0.1 percent in the prior month and the second positive reading of the year. The core is steady at plus 1.8 percent which is just under the Fed's 2 percent target.

Gasoline moved sharply higher in July, up 0.9 percent following outsized gains of 3.4 percent and 10.4 percent in the prior two months. But with gas prices moving steadily lower this month, the upward effects of gasoline will be turning downward in August. Another major component showing upward pressure in July is apparel which rose 0.3 percent following, however, a long string of declines. Owners equivalent rent continues to show pressure, up 0.3 percent on top of June's outsized gain of 0.4 percent.

Elsewhere, however, pressures are hard to find with electricity down 0.4 percent, used vehicles down 0.6 percent, new vehicles down 0.2 percent, and airfares down 5.6 percent. Medical, drugs, and education all rose only 0.1 percent.

There may be some upward creep in the headline year-on-year rates but, given the ongoing decline in oil, this report won't be pushing the Fed for a September rate hike.

CPI Percent Change From Year Ago (All Items)



CPI Percent Change From Year Ago (All Items Less Energy)

If we strip out the effect of energy, the chart looks like this.



Search for Inflation

Those who claim inflation has been tame, don't know where to look. Here's where to find it.

• Stock prices
• Bond prices
• Rent prices
• Housing prices
• Food

Inflation has been soaring since March 2009 with the revival of the junk bond market.

Fool's Mission

Central bankers, led by the Fed have strenuously attempted to hit preposterous 2% inflation targets to no avail. The result was massive bubbles in equities and corporate bonds (especially junk bonds), globally.

Few see those bubbles because they have not yet popped. But they will, and signs are picking up the time is now.

Another Bout of Asset Deflation Hell Coming Up

In a foolish endeavor to spur price inflation, central bankers have guaranteed another round of destructive asset deflation.

Credit deflation will follow because loans made on the assumption of forever rising asset prices will once again become impaired.

For the real scoop on the idiocy of 2% price inflation targets, please see Historical Perspective on CPI Deflations: How Damaging are They?

Mike "Mish" Shedlock