Wednesday, September 19, 2007

Good News Dashes Hopes

Inflation data surfaces today, crushing my hopes of having a prediction come true, as the CPI falters, with the corresponding reduced expectation for interest rate hikes, which in turn would tend to place downward pressure on the dollar.

Inflation was running at 1.7% y/y, and prices actually decreased by 0.3% over the month of August. If we see similar data come out of the USA in the near future, it will make Bernanke seem prescient.

More interestingly, let us remind ourselves of what an increasing dollar can do in the fight against inflation: the prices of the goods-only index fell 0.8% for the month, and is down -0.4%
for the year as a whole. I would attribute that deflation entirely to the currency appreciation.

Which isn't a good thing for those counting on US inflation to remain dormant.

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