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Wednesday, August 16, 2006

Consumer Price Index- What to Expect

By Yaser Anwar, CSC of Equity Investment Ideas

Consensus Notes

The consumer price index eased to a 0.2 percent in May
following a 0.4 % spike in May.

But the important core CPI posted its fourth consecutive
0.3 % increase. The year-on-year core inflation rate is up
to 2.6 percent compared to 2.4 % in May.

Core inflation needs to moderate down to 0.2% on a
regular basis soon for the Fed's projections to hold true.
And eventually we need to see some occasional 0.1 % gain
to reach a goal of core inflation at or below 2% annualized.

CPI Consensus Forecast for July 06: +0.4% Range: +0.4 to +0.5%

CPI ex food & energy Consensus Forecast for July 06: +0.3%
Range: +0.2 to +0.4%

Trends :

It is always a good idea to look at more than a few months
of data to get a sense of changes in established trends.

Monthly changes in the CPI are mainly volatile because
of sharp fluctuations in food and energy prices.

The core CPI eliminates the sharper fluctuations.

Yearly changes tend to smooth out more severe
monthly fluctuations and give a better idea of the
underlying rate of inflation.

Even with the smoother trend, note that the core
CPI does not fluctuate as much as the total CPI.

Source: Haver Analytics

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