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 2010.
(chart updated 7/12/2010) - Click the chart above for a longer term view!
As you can see from the chart above which displays the US Dollar versus the Yen in 2010, a rally started in late February but quickly petered out and the currency is now well below its starting value for the year. Early year strength could help quell inflation for most of this year but the recent weakness - should it continue - may allow inflation to peek out later this year or in 2011.
Here is a recent chart from www.fxstreet.com:
The broader dollar index shows very strong early strength in 2010 - followed by recent weakness. Although in years past it appeared that the Dollar vs. the Yen was a better indicator in terms of inflation predictability, that proved not to be the case in 2009. With the total dollar chart being so different from Dollar vs. Yen, it shall be interesting to see which chart plays out more accurately in 2010 (if either) in terms of predicting future inflation.
Recent Analysis: CPI for June: NSA Core CPI was unchanged in June but up 0.9% over the past twelve months. The seasonally adjusted numbers were up about two tenths of a percent for all of 2009 versus 2008. For 2010 the seasonally adjusted numbers have been deflationary, coming in at nine tenths of a percent below the 2009 data covering the same months.
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Seasonally Adjusted Numbers:| Core CPI | 2007 Data | 2008 Data | 2009 Data | 2010 Data |
| January | .2 | .3 | .2 | -.1 |
| February | .2 | .1 | .2 | .1 |
| March | .1 | .2 | .2 | 0 |
| April | .2 | .1 | .3 | 0 |
| May | .2 | .2 | .1 | .1 |
| June | .2 | .3 | .2 | .2 |
| July | .2 | .3 | .1 | |
| August | .2 | .2 | .1 | |
| September | .2 | .1 | .2 | |
| October | .2 | -.1 | .2 | |
| November | .2 | 0.0 | 0.0 | |
| December | .2 | 0.0 | 0.1 | |
| Full Year | 2.3 | 1.7 | 1.9 |
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. 2008 data showed a 1.7 percent increase over 2007 figures for seasonally adjusted data. 2009 seasonally adjusted numbers were up two tenths of a percent over 2009. Despite a perfectly flat reading in the first quarter of 2010 it will be interesting to see if a tiny increase of two tenths of a percent can be maintained for this year.
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.
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 2010 Housing Market Prediction by clicking here!
The Dollar is definitely moving - and now is an exciting time to watch!
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. Any forward looking statements are opinions based on the Strong Dollar Theory.
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