Get ready to be hit by some startling inflation data. The data soon to be released by the government will put a dagger through the hearts of those who are predicting a protracted period of deflation. Wall Street and Washington are telling you inflation isn’t something we need to be concerned about for years to come. The truth is starting this October the reported Consumer Price Inflation data will become ugly. That is because the year over year comparisons of energy and commodity prices become very unfavorable.

To start off, there is little evidence even now of deflation in the current year’s data. Already we find if we annualize the first six months of inflation data in 2009, the rate of CPI is running at a 2.8% annual rate. But the focus has been on the year over year change, which has been very quiescent--negative 1% for May and -1.2% in June. The YOY negative CPI print has been the direct result of plummeting energy and commodity prices.

How important are commodity prices in the CPI calculation you ask? According to the Bureau of Labor Statistics, the relative importance of commodities in the CPI index is 39.556%!

For the immediate future the storm clouds of inflation will not visible to all. The price of oil has been halved from its peak of $147 a barrel last summer to $70. And the Reuters Jeffries CRB Index has fallen from $400 to just over $260 as of today.

Therefore, the inflation data coming out for July will have the benefit of over a 50% decline in the price of oil as compared to last year. And the August data will also enjoy the pleasure of a 35% decline in the CRB Index from a year ago. However if we assume today’s prices, come December the CRB Index will be up 26% instead of down 35%. And instead of being down 50%, the price of oil will be up 100% come Christmas.

The soon to be reported surge in inflation will primarily be the result of a continued weakening in the US dollar. Our efforts to ignite the reflation of the housing market have been placed on the back of a depreciating currency. A strengthening dollar and a deflationary environment just can’t exist while the monetary base has doubled in the past year and with an 8% increase in M2.

This gives Ben Bernanke reprieve from addressing the weak currency and inflation for the next few meetings—including the one taking place today. But come November, the spotlight on the FOMC meeting will be especially intense and bright. The Fed will either have to decide to defend the dollar or allow inflation (even as reported and acknowledged by the government) to run way above their target level of 2%. The point remains the same however; he must soon provide a real rate of return for savers while at the same time most likely putting a nail in the coffin of this recovery or seek to continue our inflation and debt addictions.

*Tired of paying fees while your account value plummets? Learn about our new performance-based pricing.

Be sure to listen in on my Mid-Week Reality Check

Follow me on Twitter: http://twitter.com/michaelpento

Michael Pento
Senior Market Strategist
Delta Global Advisors
800-485-1220
mpento@deltaga.com
www.deltaga.com

With more than 16 years of industry experience, Michael Pento acts as senior market strategist for Delta Global Advisors and is a contributing writer for GreenFaucet.com . He is a well-established specialist in the Austrian School of economic theory and a regular guest on CNBC and other national media outlets. Mr. Pento has worked on the floor of the N.Y.S.E. as well as serving as vice president of investments for GunnAllen Financial immediately prior to joining Delta Global.

© 2009 Copyright Michael Pento - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Michael Pento Archive

Comments

jhenry
28 Aug 09, 06:13

cashforclunkersfacts

so if you have two or more clunkers at your house you cannot trade both of them for one car. The program is for one per

person.

Jhenry

Blogger

www.cashforclunkersfacts.info

Only logged in users are allowed to post comments. Register/ Log in

The Market Oracle is a FREE Financial Markets Forecasting & Analysis web-site.
(c) 2005-2024 MarketOracle.co.uk (Market Oracle Ltd) - Market Oracle Ltd asserts copyright on all articles authored by our editorial team and all comments posted. Any and all information provided within the web-site, is for general information purposes only and Market Oracle Ltd do not warrant the accuracy, timeliness or suitability of any information provided on this site. nor is or shall be deemed to constitute, financial or any other advice or recommendation by us. and are also not meant to be investment advice or solicitation or recommendation to establish market positions. We do not give investment advice and our comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to enter into a market position either stock, option, futures contract, bonds, commodity or any other financial instrument at any time. We recommend that independent professional advice is obtained before you make any investment or trading decisions. By using this site you agree to this sites Terms of Use. From time to time we promote or endorse certain products / services that we believe are worthy of your time and attention. In return for that endorsement and only in the cases where you purchase directly though us may we be compensated by the producers of those products.