Inflation

High Inflation typically is NOT a good environment for stocks, but we don’t believe the CPI will move to the “high” inflation environment.

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As U.S. and global economies slow, inflation should be cooling off. However rising food and energy prices are keeping CPI and PPI measures uncomfortably high.

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There is a strong linkage between higher Food and Energy costs and “Core” CPI, as these higher prices filter directly to the so-called “Core” CPI categories. If Food and Energy prices remain strong we could see a reacceleration in CPI inflation this fall.

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There is political pressure to keep inflation low, minimizing COLA (cost of living adjustments) and Social Security costs. Low inflation also helps to keep interest rates down, which keeps government interest payments as low as possible.

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Longer term, we are concerned about the rising trend of food and energy inflation.

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We’re back on form after last month’s praise of government economists... questioning the value of the GDP Deflator.

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We believe that the CPI understates, not overstates inflation.

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There is a strong linkage between higher Food and Energy costs and Core CPI.

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Persistently high Food and Energy prices tend to drive the “Core” CPI inflation rate higher. These two subsets have now been in a rising pattern since the late nineties and cost pressures are forcing more and more manufacturers to raise prices.

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CPI and PPI expected to peak in early 2008 and then decelerate. Our initial 2008 predictions are +3.5% for CPI and +4.0% for the PPI by year end...That’s the good news.

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The notion of a core rate of inflation (excluding Food and Energy) seems to be fading away—finally!

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We expect the CPI and PPI to peak in January 2008 and then decelerate some as the economy begins to slow down.

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Yes, it is thermal pollution time again. It’s the new year when prognosticators and investment pundits produce large volumes of hot air, probably contributing to global warming.

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CPI Accelerating In Q4, Economy Creeping Along, But Expect Recession In 2008

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We expect broad inflation measures to accelerate over the remainder of the year.

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It is very possible that the early part of 2008 will see a brief period of higher inflation combined with slowing real growth in the U.S. economy.

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Bulls may indeed have Christmas, but fundamentals for bearish case in 2008 are extensive.

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Expect economy to slow the remainder of 2007 as a result of slower consumer and business spending, as well as housing and auto woes. A 2008 recession is now a stronger possibility. 

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We expect most broad inflation measures to accelerate over the remainder of the year, including CPI, Core CPI, CPU, PPI and GDP deflator.

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This month’s “Of Special Interest” focuses on the inflation pressures into today’s marketplace.

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