Breakdown of CPI DATA and Real Earnings, August 2022

It is that time of month, to survey the damage from inflation. The BLS report was released this morning and it was a surprise. (historical releases)

This is what I projected for the month...

Now for next month's CPI-U, and here's hoping I am once again overshooting... month over month at 0.0%~0.2% and year to year of 8.3% to 8.5%. 

Well, it was... 

The Consumer Price Index for All Urban Consumers (CPI-U) rose 0.1 percent in August on a seasonally adjusted basis after being unchanged in July, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 8.3 percent before seasonal adjustment. 

Gasoline fell much, much further than last month and failed to provide cover for all the other areas, which are inflating. 

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Unadjusted remains sort of flat. Meanwhile my personal inflation rate edged up to 7.9%, with a +0.26% month to month increase. 

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On to the C.O.L.A. ... The CPI-W slid -0.2% for the month, which essentially narrowed the range for C.O.L.A. adjustments.

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Frankly speaking and after checking my pencil for an eraser... I'll pencil in 8.7% as the most likely C.O.L.A. The September CPI-W has a very wide range, as can be seen. Either side of the 8.7% figure is also a rather wide range.

As for the Real Earnings...

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The hourly is edging up slightly, but still below February 2020 rate.

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The weekly level slipped this month (all inflation adjusted) and is still below the February 2020 level.

For next month's projection, another wide range... 7-8%~8.3%, with month to month of -0.1~ up to 0.3%. The drop in gasoline failed to cover all the other areas, and the drop in gasoline for September will be much smaller, in my opinion. 

I guess what I am saying is... there could easily be another upside surprise, when the September numbers come out. I sincerely hope not. It has nothing to do with stocks, Federal Reserve or Macro Economics. I am just a poor schmuck getting squeezed.

Review of EIA Weekly Report for September 8th 2022

The EIA released the latest weekly report, and there is a continuing sliver of demand destruction. The numbers do seem to suggest it, with the day's supply of 24.1 from last week jumping up to 24.5 on this week's report.

Gasoline Inventories rose 333K barrels from last week. This is spite of exports being 1M Bbl. more than imports.

The market for gasoline is still declining, and looks to continue with this report. According the the AAA, the national average has slipped 7.8¢ from last week, and my guess... there is room for another 56¢, although weather may become an obstacle at this point. 

Speaking of weather, the models aren't showing anything of T.S. variety hitting the U.S. East or Gulf Coasts out to the 3rd week of September. Keeping fingers crossed. 

Crude stocks increase 8.8M BBLS from last week and exports of crude and petroleum products outpaced imports by 4.8M BBLS. WTI is down about $3.50 from last week. Basically, back to End of January numbers. Of course, there is some rumbling of OPEC+ slashing production by 1M barrels per day, as well as suggestions of further SPR releases.

Diesel fuel continues to be problematic in some areas...

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For the rest of the picture...

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This is likely my last weekly review of the report. I will continue to track, but blogging about it has become somewhat tiresome. I see what I see and understand what I see, but conveying those thoughts in a coherent manner is the issue.

Another Look at C.O.L.A.

 

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Back in August I stated... somewhere between 8.6% ~ 9.0%. Clearly, a revision has taken place. Largely due to the continued drop in gasoline. 

If you remember the July CPI report, it stated the -7.7% gasoline number held off all the price increases in everything else. August is over and I am betting the August CPI will be -10% for gasoline. 

Of course, the C.O.L.A. is based on CPI-W, which slipped -0.1% in July and was 9.1% over the year.  -10% in gasoline would in theory... create an even lower number than -0.1%. Granted, the other stuff may be accelerating inflation wise, but I am not so sure about that. 

In any case, I suspect the CPI-W will be in the range as noted and the monthly change will be -0.3%~0.5%.

That would be stellar, except it is only gasoline and many other things like food, electricity, and heating bills are rising... going into that time of year. A lump of coal might be a welcome gift, come Christmas. (Hey, everything else has gone topsy turvy... why not?)

For the record, the C.O.L.A. announced in fall 1981 for 1982 year was 11.4%. The fall of 1982 announcement for year 1983 was 7.4%. This year's announcement should be between those two numbers.

And for the first time in a long while, there should not be much of an increase in Medicare B premiums. Mostly because we were over charged last year, but still, taking them at their word of that drug being half of last year's rise, and then they found out that drug was half the original price... we end up back to where we currently are for next year. That $60 we got over charged this year will be metered back to us this coming year. 

Am I Over Thinking?

 

Just when I think I have figured something out... it goes "poof"!

A bit over a week ago, the price of natural gas in Europe and U.K. went skyward, Mostly because Gazprom was shutting down Nord Stream 1 for repairs and might not reopen. 

On the 26th of August, Norway's Gassco, stated they will reduce capacity for planned and unplanned maintenance at 13 fields and processing plants throughout September.

This past week saw prices drop 30%. Reasons given...

1. It was thought Nord Stream 1 would reopen on schedule.
2. Germany was a month ahead of meeting its storage capacity targets.
3. It was suggested that certain large industrial users of natural gas could not afford the high price and were shutting down.
4. It was further suggested, these companies were selling some of that much cheaper natural gas "forward contracted" a couple of years back... for a healthy profit margin going forward. 

Then late Friday, Gazprom said no on reopening on schedule, just like everyone originally thought. 

So #1 was wrong, #2 is probably right. How can #2 continue on pace to achieve all its targets, if Nord Stream 1 remains shuttered and Norway starts their planned and unplanned maintenance? Unless there is much to #3 and #4.

Let's face it... if you were a company that heavily uses natural gas; you would want to plan several years ahead and lock in prices. Say it is mid 2019 and you lock in a 10€ per MWh and you have that currently locked into your business model, but your business model suggests a dramatic slowdown in your sales... you could look back at that 10€ per MWh and see the market is currently paying 20 times that rate. 

Call me quite cynical, but when such a company screams they cannot afford such high natural gas prices and then shut down, I wonder what the real motivation might be. 

This becomes especially true, when considering some of these countries are multi-national conglomerates.

Am I over thinking?

Review of EIA Weekly Report for August 31st 2022

The EIA released the latest weekly report, and there is a continuing sliver of demand destruction. The numbers do seem to suggest it, although the day's supply of 24.3 from last week slipped to 24.2 on this week's report.

Gasoline Inventories slid -1.172M barrels from last week. That limited loss in day's supply was in spite of a healthy 3+MBbls of export more than import. Yet the prices continue to slip.

The market for gasoline is still declining, and looks to continue with this report. According the the AAA, the national average has slipped 4¢ from last week, and my guess... there is room for another 40¢, although weather may become an obstacle at this point. 

Speaking of weather, the models aren't showing anything of T.S. variety hitting the U.S. East or Gulf Coasts in the next couple of weeks. Keeping fingers crossed. 

Crude stocks fell 3.3M BBLS from last week and exports of crude and petroleum products outpaced imports by 14.4M BBLS. WTI is down about $5 from last week. Basically, back to where it was 2 weeks ago.

Diesel fuel continues to edge up, as the national inventory is -18% from year ago levels. 

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The situation is indeed dire on the East Coast, especially in New England, as well as the Central Atlantic. As I have stated elsewhere, much of this blame can be laid at the feet of certain folks in a place called Albany. Granted, future issues could be alleviated by Congress repealing the Jones Act... but fixing stupid is a whole other ballgame, imo.

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In summation, we have inventories falling, gasoline prices falling, Russia shutting Nordstream for a few days, and European and U.K. natural gas prices falling. Clearly, I do not have a handle on any of this... to understand the whys!

End of the month, and time to take a bit of a break... or maybe not!

GDP 2Q, 2022 2nd Est., PCE, Income and Outlays, Inflation Summary and Opinions!

The BEA released the 2nd estimate of GDP and it was revised to -0.6% annualized. You can read the link at your leisure. I am not going to yap about the data or the verbiage in the release. 

What did amaze me, was a ripple in the news about the trade deficit. Here is my updated trade deficit drag on GDP...

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The media has been reluctant to mention trade deficits, so it was a surprise to see it noted on my twitter feed. 6 straight quarters of record trade deficits to GDP and someone noticed. Also, the dollar rise seems to have awakened some, after 4 quarters of rises... amounting to 17.2% increase.

This was all yesterday's news, so onto the Personal Income and Outlays...

Personal income increased $47.0 billion (0.2 percent) in July, according to estimates released today by the Bureau of Economic Analysis (tables 3 and 5). Disposable personal income (DPI) increased $37.6 billion (0.2 percent) and personal consumption expenditures (PCE) increased $23.7 billion (0.1 percent).

The PCE price index decreased 0.1 percent. Excluding food and energy, the PCE price index increased 0.1 percent (table 9). Real DPI increased 0.3 percent in July and real PCE increased 0.2 percent; goods increased 0.2 percent and services increased 0.2 percent (tables 5 and 7).

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Note that June numbers were revised upward, 0.1% on the DPI and downward of PCE. In any case, the expenditures (PCE) is still outpacing the disposable disposable income (DPI). 

Here is a summary of various inflation gauges for July...

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It is impossible for me to finish without an opinion, although my opinion is sprinkled throughout.

As I have noted in previous articles, even the BLS stated the flat July reading was totally due to -7.7% change in gasoline prices. I would put the fall for August near the -10% range. It would seem the expectations would be for another flat month or possibly a negative print. 

But... the energy index was down last month -4.5%. There is more to energy than just gasoline as the rise in electricity was +1.9% and piped gas (N/G?) was down -3.9%. I would expect a continuation of electricity rises and a reversal of piped gas... back to increases. 

Also, the SPR release is set to halt at end of October, and OPEC is suggesting production cuts... to stabilize prices!

Diesel prices falling has shifted the past two days and is showing an upward tilt, as fall harvest is now beginning. Gasoline prices continue to fall, but we haven't had a storm in the gulf. Keep an eye on the tropics!  

Speaking of weather... food is rather dependent on the weather, with droughts inhibiting yields, and heavy rains disrupting both planting and harvesting. These weather occurrences are always an issue for someone, somewhere. The frequency and widespread occurrences, are troubling.

Fertilizer is also used to increase yields in crops, and are a global commodity. A lot of natural gas is used in the production of fertilizers. European producers of fertilizers are reducing and/or curtailing production of fertilizers... as natural gas prices have become to high to operate. 

Of course, that would be a European problem, except fertilizers are once again... a global commodity. Research phosphate, nitrogen, potash, anhydrous ammonia, etc. 

While LNG export is limited by infrastructure... these fertilizers are mostly not. So even if there is a good growing season, the cost of raising those crops will increase, due to fuel costs (diesel) and yield enhancing fertilizer.

The old adage "hope for the best, but prepare for the worst", comes to mind. Not that the worst will happen, but let's not become giddy over some short term positives about peaking inflation, etc. 

Or as Yogi said... "it ain't over, till it's over."

Review of EIA Weekly Report for August 24th 2022

The EIA released the latest weekly report, and there is a sliver of demand destruction. The numbers do seem to suggest it and the day's supply of 23.8 from last week has edged up to 24.3 on this week's report.

Gasoline Inventories slipped a mere -27,000 barrels from last week. That gain in day's supply was in spite of a healthy 2MBbls of export more than import

The market for gasoline is still declining, and looks to continue with this report. According the the AAA, the national average has slipped 6¢ from last week, and my guess... there is room for another 24¢, although weather may become an obstacle at this point. 

Crude stocks fell 3.2M BBLS from last week and exports of crude and petroleum products outpaced imports by 2.2M BBLS. WTI is up about $6 from last week.

Diesel fuel at the pump broke the string of price drops as of this morning. 

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The day's supply continues to slip in this category. 

Natural gas propelled upward, but is now falling back slightly. The Freeport restart has been moved back to November. 

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It has become popular to used the term Barrels of Oil Equivalent, so simply multiply the above dollar values X 5.8. You can then use whatever forex conversion method to achieve the price in your currency.

While most of my articles contain opinions, I will now vent...

Generally speaking, countries throughout the world and their lackeys (Media) point out the failures of someone else, to deflect problems within. It is sort of in the vein of "we don't have so bad, when you consider how things are in that other country."

The issue in Europe over natural gas prices, does not get a lot of mention in the U.S. mainstream media. I expect that to change as the talk surrounding electric bills and some 20M households are behind on those bills. 

While natural gas is nowhere as high in the U.S. as elsewhere... some things that pique my interest.

• Natural gas is likely to surge come reopening of Freeport on November 1st..
• 40% of U.S. electricity is derived from natural gas.
• The SPR release is slated to end on October 31st.
• OPEC is discussing a reduction of crude, to stabilize the market. 
• Last month's CPI at 0.0% month to month will likely be repeat for August. Solely based on gasoline prices falling. (Nothing else) (The gasoline index fell 7.7 percent in July and offset increases in the food and shelter indexes, resulting in the all items index being unchanged over the month. - BLS)
• Electricity and N/G are up 15% and 30% from last year, and rising fast.
• Food prices have not indicated any moderation of prices.
• There are already 20M households behind on energy bills.

I have no doubt, that by January, the European issues with heating, economy, etc. will be a daily feature in U.S. media. Conversely, European media will no doubt be talking about the dire situation of poor Americans. 

It's all deflection from misery in the home country, imo.  

One other note, the gasoline index appears to be headed for a near -10% fall from July, yet the all items index, will likely be 0.0%. The fall in gasoline is masking inflation in other areas.

Not sure what the winter weather forecast might be, but morale might be dark and gloomy in many areas.