Real-time Inflation Indicator (per annum): 7.8%

Readers have wondered about the inflation subhead that now appears at the top of each Brad's Desktop column. Pure and simple, it's a money barometer. Money's on everybody's minds nowadays. Some folks are worried because they don't have enough of it. Others complain that there's just too much cash sloshing about in the economy.

The real-time inflation indicator is a daily update of dollar purchasing power measured against gold and the euro (an explanation of the indicator, together with reader comments, can be found in the Desktop column titled "Computing Inflation In Real Time"). Plainly, our inflation metric is computed with a vastly different methodology than that better-known yardstick, the Consumer Price Index, or CPI.

Real-Time Monetary Inflation

The U.S. government-supplied CPI measures lagged changes in the value of off-the-shelf consumer goods and services. Tomorrow, for example, the CPI update for October will be released. You'll get, as result, a look back at the price inflation you endured a month ago, long after pricing pressures percolated through the supply chain.

The government supplies the more-predictive wholesale-level price inflation in its Producer Price Index, or PPI. Today, the October PPI was released, but we'll get back to that in a moment.

Our little subhead gauge meters inflation as a monetary, not a price, phenomenon. That's partly the reason the number looks so different from the CPI numbers. The last CPI update pegged price inflation at a 4.9% annual rate. We, instead, figure the velocity of currency denigration at 7.5%. Like PPI, our indicator is based upon wholesale transactions and is predictive of price changes in retail transactions to come. Since we rely upon the gold and foreign exchange markets for pricing, though, we can keep track of inflation without the time lags built into the government figures.

With that in mind, we've been seeing a disinflationary trend since spring, well before CPI and PPI rates began to slow. When, and if, the U.S. government's current borrowing binge is monetized, a reinflation is likely. And we figure our indicator will turn up well before rising inflation is indicated in CPI or even PPI.

Speaking of PPI, the Bureau of Labor Statistics says the index for finished goods fell 2.8% in October, following a 0.4% decline in September. Analysts had been expecting PPI to slip, but only 1.8%. The annual rate of wholesale inflation for finished goods was pegged at 5.2%, down significantly from the 8.7% rate clocked in September.

Core PPI - that is, the index for goods other than food and energy - rose 0.4%, the same rate at which prices inflated in September.

The obvious conclusion is that food and energy prices are driving PPI, just as they've been doing for months. Only now the trajectory is downward rather than upward.

We look at energy price trends weekly (our last update was "Oil Market: Wholesale Vs. Retail"). And every month, on the day the CPI is released, we update our own food metric, the Breakfast Index. Our last look at the price trends for breakfast table fill-ups showed prices falling precipitously at the wholesale level ("Putting The Squeeze On Inflation At Breakfast").

And what does the PPI tell us of wholesale food prices now, or rather, in October?

The farm price component of PPI nose-dived 11.3% in October, squeezing out pretty much all of the remaining inflation backed up in the food supply chain despite finished food prices - the prices paid by grocers - edging lower for the second consecutive month.

PPIs For Food

Stay tuned for tomorrow's CPI numbers or, if you want a jump on next month's food trends, for our Breakfast Index.