EC An Inflationary Slingshot

Cost-push inflation could break out (and a note on gold)

Before beginning the post a little context is in order. We (NFTRH) anticipated the current pause in long-term Treasury yields (one indicator of inflation) because pro-inflation sentiment became over-done in March and was due for a cool down; so said a contrarian view. This post discussing the likelihood of more inflation to come is not written by a one-way bias booster. It’s important for credibility to make these distinctions from the herds running with the daily news cycle.

The short-term contrary sentiment situation against the inflation view began with the Bond King’s media-touted short of long-term Treasuries (i.e. expectation of higher yields), per one of our best macro tools…

(Click on image to enlarge)

30 year treasury yield

…and continued with news of 77% of Americans’ fear of inflation…

…as Ma & Pa were given a prime time view of the inflation problem. See Peter Schiff Scares Ma & Pa, Inflation Gets Tuckered Out

…and importantly, with ISM’s latest release showing a booming manufacturing sector right along with booming costs paid by said manufacturers. See A Decidedly Different Look at the ISM RoB.

Above is the funny graphic (funny to me, anyway) I created for that post. Here are the hard numbers included in the ISM report, a fabulous headline reading of US manufacturing data for March.

ism

But here is the key component of the report, from the standpoint of an oncoming inflation problem.

All well and good. Inflation is not that bad yet, now is it? The CPI is on its perma-trend upward as usual. Producer prices (PPI) are rising but still in a manageable (sideways) trend.

PPI (St. Louis Fed) shows that flat trend, a product of the Goldilocks years of post-2011 (kicked off by Operation Twist and it’s expressed goal of “sanitizing” inflation signals right out of the macro). The Bernanke Fed literally painted the macro to behave a certain (non-inflationary) way.

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Andrew Armstrong 4 weeks ago Member's comment

Great read, Gary. Thanks for the share.