Posted: 3:52 am
August 12, 2008
WALL Street has been feasting lately on news that the speculative bubble in crude oil is deflating. This Thursday, inflation could bite back.
The July consumer price index (CPI) will be released before the stock market opens, and all the good news we've been getting about declining oil and gasoline prices could be missing.
Back in May a top economist working on the CPI explained in this column that energy inflation had been under-reported during the spring because of seasonal adjustments that are automatically made to the statistics.
These adjustments, said economist Pat Jackman, were going to be reversed starting in June. "We are going to show huge increases," I quoted Jackman as saying back then.
"If gas prices are stable from May forward, we are going to end up showing roughly a 16.3 percent increase (for the period) between May and December."
Jackman's prediction came true in June's numbers, when consumer prices rose an outrageous 1.1 percent from the prior month. That was frighteningly higher than the experts expected, and most of the gain - as Jackman said - came from energy costs.
Without food and energy, the CPI was up just 0.3 percent.
Despite being burned by the June report, the experts - always the optimists - are predicting tame inflation this month.
The consensus is that Thursday's CPI -- which measures costs from the 1st through the 31st of July - will show an overall gain of just 0.4 percent.
When you ignore the escalating price of food and energy, the experts think inflation will be half that much.
Those bold, rose-colored predictions make Thursday's figure that much more intriguing.
Given the fact that speculators are finally giving up control of the energy markets, that sort of optimism might almost seem warranted.
But it's probably not - and I'm now going to tell you why. (Hopefully what I'm now doing is lowering expectations to more reasonable levels.)
Recent drops in gasoline prices, which are a major component of the CPI, probably won't be captured in the July CPI.
In fact, even though gasoline has fallen to about $3.88 a gallon nationwide, the CPI will likely treat the fuel as if it was still around $4.10.
Why? Because the 22-cent a gallon savings probably didn't come in time for the latest survey.
A source that works on the inflation numbers said that the Energy Department's and CPI's gasoline calculations "have traded within a penny of each other for months."
In other words, it'll probably happen again.
Gasoline just isn't going to give the markets a break on Thursday.
