Merk Investments: CPI

The consumer price index in August declined -0.1% (-0.137%) m/m and fell to 5.4%(5.372%) y/y. The core ex-food and energy increased 0.2% (0.194%) m/m and 2.5%(2.541%) y/y. The ex-food component declined -0.3% m/m, while the ex-energy component rose 0.3%. Energy costs overall fell -3.1%, while services increased 0.1% for the month.

The primary catalysts for the decline in the headline were the -0.1% fall in the cost of shelter, -4.2% fall in the cost of gasoline and -0.5% drop in commodities. The owners equivalent rent, which comprises 23.9% of the series advanced 0.1% m/m and 2.5% y/y. The cost of food and beverages advanced 0.6% m/m, medical care rose 0.2% and recreation increased 0.5%.

For the first time in nearly two years the CPI saw a modest decline on the back of the decline in the cost of fuel and energy. The core rate firmed and when taken out to three decimal points nearly missed increasing to 2.6% For that rate to ease the market will have to observe an increase in slack in labor and product markets and continued moderation in energy prices to facilitate a decline in core costs concomitant with the Fed forecast. We think that the FOMC will take some comfort from the data and should note the improvement in the upcoming monetary communiqué.

This report was prepared by Merk Investments LLC, and reflects the current opinion of the author. It is based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any investment product, nor provide investment advice. Merk Investments does not own any of the stocks mentioned; this is not an offer to buy or sell any security mentioned.

Merk Investments: Consumer Price Index: August 2008