Inflation
There has long been controversy over inflation numbers. An example of the bull case is Paul Kedrosky’s post on how many hours of work are required to buy certain items today compared with 1975. The bear case is explained by the Big Picture, and concerns adjustments made to CPI numbers over time that have resulted in lower reported inflation than there would have been under the previous methodology.
We won’t step into the controversy as to whether the numbers are overstated or understated. Instead, we will look at whether the numbers indicate anything for particuar sectors or companies we follow. The source for all of these charts is the Bureau of Labor Statistics.
This first chart (above) shows the year/year change in producer prices for electronic computer manufacturing. While the May PPI data shows a year/year decline of 10.9 percent, that is at the low end of the historic range of declines. This is one factor that has contributed to DELL’s poor performance, as DELL’s business model does better when its competitors inventories are losing value faster.
The next chart shows the change for semiconductors. This sector, too, is experiencing lower than average price declines. However, the Intel/AMD price war and ballooning inventories will soon take care of that.
Next we turn to an old-line industry that has been doing quite well due to the boom in commodities: railroads. PPI had been soaring, showing the rails had strong pricing power. That trend appears to have clearly reversed. Will the rails follow pricing strength down?
And finally, can Verizon remain so weak in the face of the best pricing environment in years for wireline telecom services?
