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 2009.
(chart updated 1/15/2010)
As you can see from the chart above which displays the US Dollar versus the Yen in 2009, a rally started in mid-February but then petered out in May. The index continued to trend down until the tail end of the year. We start 2010 slightly above the 2009 level. A sustained rally similar to last year might signal tame inflation for most of 2010 as well. But a continued downslide could spell trouble for core inflation.
Here is a recent chart from www.fxstreet.com:
The broader dollar index shows very strong early strength in 2009 - or a lot more weakness in the last three quarters of 2009, depending upon how you wish to look at the situation. Nevertheless it still shows an index slightly that is roughly the same level this year as this time last year. Recall that often used mathematical/economic statement, "All things being equal." With the start of the index being roughly equal it shall be interesting to see what differences develop in 2010 versus last year. Will core inflation stay below two percent? Stay tuned.
Recent Analysis: CPI for December: NSA Core CPI was down .2% in November and up 1.8% over the past twelve months. The seasonally adjusted numbers are up about two tenths of a percent for all of 2009 versus 2008. Starting in April of 2008 the NSA figures were essentially flat and became deflationary in November and December. You may recall that it was then that we mused that the monthly numbers could easily spike based on the USD Index. That did occur. The early year strength in the index may have helped to quell inflation.
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Seasonally Adjusted Numbers:| Core CPI | 2007 Data | 2008 Data | 2009 Data |
| January | .2 | .3 | .2 |
| February | .2 | .1 | .2 |
| March | .1 | .2 | .2 |
| April | .2 | .1 | .3 |
| May | .2 | .2 | .1 |
| June | .2 | .3 | .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.
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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