Inflation (Deflation) Pressure Gauges

12 Month Deflation
The CPI measured yr/yr showed deflation of 1.3% through May, and
the yr/yr CPI for June and July could well give deflation readings of
2.5%. No surprises here, and no surprise that the 2.5% deflation
mark may reflect the bottom on pricing pressure for 2009.

Inflation Potential
The inflation gauges I use appear to have made bottoms here in Half
1 '09. The CPI remains sensitive to the direction of commodities
prices, especially fuels. With a positive monetary liquidity cycle
underway and low short term interest rates, traders have been
running up the petrol sector and commodities broadly as they look
toward economic recovery. Right now we appear on track to see a
reversal of direction in the yr/yr CPI toward inflation on the order of
up to 2.5% by year's end 2009. Commodites are volatile indeed and
the current uptrends are running ahead of the economy. Whether
the action in the trading pits can sustain the direction of commodities
over the course of the year remains an open question. It will be
interesting to see if the Fed's FOMC addresses this issue in its
6/24 statement and at upcoming meetings.