EUR/USD and CPI: Levels, Ranges, Targets

Yellen and the Fed want 2% Inflation but the question 2% of what is the unknown answer. Inflation in CPI terms is defined by the BLS  as either higher prices or  falling dollar values. CPI is measured as average prices. CPI as an index was 241.43 in December’s  release and rose in January  1.41 index points to 242.83. The base period is 100 from 1982.

In USD terms, a $100 item in 1982 now cost $242.83, a $10,000 automobile now cost $24,000.  Since 1982 or 35 years,  the CPI index increased 24.59% or 0.24 per year. January was reported 0.6%, actual was 0.58%. Must take index point difference 1.41 and divide by last index 241.43 = 0.0058, then multiply by 100 to equal 0.58%. Gasoline increases was responsible for the 0.6 increase. Gasoline in USD, AUD and NZD  CPI Indices account for just about 0.2. Good estimation is CAD,EUR and the remainder of the world factor the same Gas accounting at 0.2.

CPI increased 2.5% over the past 12 months. The index increased 2.5%. At 0.6%, the percentage is bumping against the 90% Confidence Interval. Is Yellen interested in this most widely reported All City CPI or the new chained C-CPI -U with a 100 base period from 1999. Possibly CPI W to account for wage earners and Clerical workers, or maybe CPI Transportation. Literally 100’s of CPI indices exist.

Is Yellen working from the 1982 base period CPI,  1999 Chained or maybe the last 5 years. A full adjustment is done every 5 years because Seasonal V Non Seasonal is fully calculated. March CPI is vital because it completes the full 5 year mark. Seasonal is best for short term trend because it eliminates weather, sales, cycles, holidays. Non Seasonal is best viewed for longer trends because it takes all factors into consideration. If 2.5% is the headline and 0.6 the Core then both figures reveal little about the overall index or the index target to meet this 2% goal. Point 2.5% is a 12 month read on the index and a small small move overall. From 0.6, 2% is miles away.


Brian Twomey


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