Data Choices
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Strong Dollar Policy : (click here to jump to the latest update)
Steve Forbes, CEO of Forbes, has long spoken about the need for a Strong Dollar Policy. In an attempt to prove or disprove this theory Data Choices conducted statistical analysis of the Consumer Price Index (CPI), the Fed Funds Rate and different looks at a strong (or weak) U.S. Dollar. The results have been interesting.
The chart below shows the U.S. Dollar against the Japanese Yen going back to January 2008.
(chart updated 8/14/2008)
In late April and early May the Dollar began a sustained recovery. Advocates of the Strong Dollar Policy would likely say that the bottom that formed then could lead to core inflationary pressures through October, but if the recent strength remains intact then inflation concerns should subside by the end of this year and early 2009.
Looking at a more condensed view to see what has been happening lately reveals the following:
(chart updated 8/14/2008)
There was room for significant concern in July, but the dollar did recover against the Yen and move higher. Currently the chart looks very favorable in regards to inflationary concerns.
The overall look is even more intense if we use a broader dollar index instead of just comparing the dollar to the yen.
You can see a broader dollar index from www.fxstreet.com which utilizes a Java applet.
Here is a recent chart from www.fxstreet.com:
July appears to have been a pivotal month for the index. Continued strength may help quell core inflation.
Recent Analysis: CPI for June was released on August 14th, 2008. Core CPI was up three tenths of a percent. Today's report indicates inflationary concerns. A three tenths rise in core inflation is not seen as good, particularly when it has followed a three tenths rise last month. It does seem to indicate that higher food and energy costs are now seeping into the core rate. We had previously stated that the weak dollar early on might signal inflationary concerns running into the third quarter. By the same token the recent strength in the dollar, if maintained, may allow core inflation to cool in the late fourth quarter of this year and first quarter of next year. The real question is whether the very recent and dramatic climb in the overall dollar index can be maintained over the next month?
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| Core CPI | 2007 Data | 2008 Data |
| January | .2 | .3 |
| February | .2 | .0 |
| March | .1 | .2 |
| April | .2 | .1 |
| May | .2 | .2 |
| June | .2 | .3 |
| July | .2 | .3 |
| August | .2 | |
| September | .2 | |
| October | .2 | |
| November | .2 | |
| December | .2 | |
| 2007 | 2.3 |
Note: Seasonal factors have been recalculated to reflect developments during 2007. For this reason, some of the seasonally adjusted figures above and elsewhere in this report differ from those previously published.
The above chart shows seasonally adjusted core inflation. Non-core rose in 2007 at a rate of 4.1 percent, versus only 2.1 percent in 2006. Core CPI was up 2.6% in 2006 and actually showed a slight decrease for 2007. The primary factor affecting core inflation, according to the Census Bureau, was a decreased cost for rents.
We maintain that watching core inflation is a more significant indicator of the economy. If food and energy inflation is sustained it will eventually seep into the core inflation - and we believe that such seepage into core inflation is where the real problem lies. But for 2007 core inflation spiked on occasion, but was not significant overall.
This chart shows the non-seasonally adjusted core CPI figures for 2007:
Measuring the "taming" effects of the housing markets is not something the Fed is equipped to do - but it clearly is something that concerns them more than inflation at this time. Here is some interesting info on the recent Real Estate market in North Idaho.
Read our 2008 Housing Market Prediction by clicking here!
The Dollar is definitely moving - and now is an exciting time to watch!
Chart of Core CPI (not seasonally adjusted) going back to 2003
This is an interesting experiment in data analysis and certainly a project that we will keep active for some time.
Data obtained from the Bureau of Labor and Statistics (www.bls.gov), www.oanda.com, and other data sources deemed to be reliable. Some figures may be initial or interim figures. All data is believed to be accurate at the time of publication but is not guaranteed. Not responsible for errors or omissions. The Strong Dollar Policy Project is an ongoing analysis project. Nothing contained herein should be construed as an offer to buy or sell securities, notes or any other instruments relating to the U.S. Dollar or any other denomination. Data is for informational, educational and entertainment value only.
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