Prediction Number 6: Inflation Will Return To 3% In 2020

2019 is coming a close, and now as we turn towards next year, I present to you a list of 10 stock market predictions for 2020. You can review my list of top 10 predictions for previous years 201620172018, and 2019 to see how I did. 

As I did last year, I will start with number 10 and work our way up to number 1 over the final month of 2019. Enjoy!

Prediction Number 6: Inflation Will Return to 3% in 2020

With global growth returning, the U.S. economy surging to a 3% growth rateU.S. rates on the rise, and the U.S. dollar sinking, all these will lead to the return of inflation in 2020. 

Since peaking at 2.94% in July 2018, the y/y change in the consumer price index has been steadily declining. The falling rate of inflation can be directly tied to the strengthening of the U.S. dollar, with the dollar index surging by 11.5% since May 2018. 

cpi

Additionally, the y/y changes in the producer price index have declined sharply as well since July 2018 after peaking at roughly 4.2%.

PPI

The declining rates of inflation can directly be tied to the value of the dollar index, which has soared in value starting in April 2018. If the dollar weakens as we have previously noted in prediction 7, then it seems likely that inflation rates should rise as well.

dollar index

Then there is the reality that the Fed has noted it was willing to let inflation run ahead of its symmetric 2% target, which means even if CPI and PPI run hotter and approach their 2018 highs, the Fed is unlikely to raise rates.

It means that inflation rates in 2020 are likely to jump with CPI year-over-year rates pacing around 3%.

In this low inflation world a 3% rate is welcomed and unlikely to do much if any damage to the overall US economy or the stock market. 

Disclaimer: This article is my opinion and expresses my views. Those views can change at a moment's notice when the market changes. I am not right all the time and I do not expect to be. I ...

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