Looking ahead to 2011, we are keeping a close eye on Housing, Food and Wages, which all could be bottoming out.
Gently rising CPI inflation at present can be best characterized as normal business cycle inflation.
The greatest danger in late 2010 and 2011 is monetary debasement inflation, not demand based inflation.
Mild CPI Inflation Expected In 2010 (+3.2%); Higher PPI Inflation (+6.0%)
U.S. commodity prices are again trending higher, like they did in 2002, as the U.S. economy recovered. The weak U.S. dollar helped, and recent rally might not last.
Like they did in 2002, as the U.S. economy recovered, U.S. commodity prices are again trending higher.
This transition from deflation to mild inflation will be a “numbers game” as late 2009 readings are compared against late 2008’s strong deflationary readings, driving the twelve month rate up.
Commodity Diffusion Index hit 75%, an indication of rising inflation pressures. Moves above 70% in this inflation gauge have served as a pretty good sell signal for stocks.
By year end 2009, we expect the twelve month PPI to be back up in mildly inflationary territory.