Inflation

Measured yr / yr, the CPI for April came in at 3.9%. There has
been some deceleration in 12 month momentum, as the yr /yr
reading for Jan. '08 was 4.3%. The 3.9% CPI topped the
comparable wage growth of 3.6%, keeping the real wage under
pressure. The comparison is worse when the CPI change for the
past 6 months is annualized. That works out to 5.6% and helps
explain the stress expressed by consumers in now countless
news stories.

My inflation thrust indicator has lost some of its momentum
since Feb. '08, but since this indicator is heavily driven by a
volatile commodities component, you have to be careful with it.
Fact is, the broad CRB commodities index remains in a powerful
uptrend and has yet to signal that relief for beleagured wage
earners is in sight.

As with the past two years, gasoline has spiked above its longer
term trend channel as the kick off to an expanded driving
season begins. Refiners are feeling a squeeze in the US. The
gasoline price has not matched the furious uptrend in the oil
price and petrol consumption has weakened as drivers seek ways
to cut back.

The mild deceleration of yr / yr inflation pressure has worked to
increase the p/e ratio of the SP 500 Market Tracker, but it
remains mired down in a 1275 - 1300 range reflecting earnings
weakness since mid-2007.

Not surprisingly, with inflation being driven by fuels and foods,
we are now witnessing stronger inflation pressures on a global
basis as well as deterioration in real wage growth. Global
growth is moderating, but we have yet to see the cracks in
pricing pressure that would herald a trend lower. In fact, in
the US, capacity utilization for primary materials remains high
and well above longer term averages.