US INFLATION TAPERING OFF

US inflation has been accelerating throughout 2011 with the YoY growth in total CPI reaching 3.6% in June. And while core CPI is only up 1.6% YoY in June, it has jumped 2.9% during the last 3 months.

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(charts from Cleveland Fed)

Some indicators are suggesting that both headline and core inflation are tapering off:

  • The MIT BPP Index, which measures online prices on a daily basis, has remained fairly stable in June after rapid gains during the first 5 months. Monthly gains in the BPP have declined from  +0.7% in February-March to 0.4-0.5% in April-May and to 0.2% in June.

  • Crude oil and gasoline prices have also been more stable since May:

  • Many commodity prices have peaked or even declined in recent months. Wheat and cotton prices, in particular, have declined significantly lately.

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COTTON

Good news on the inflation front would be welcomed.

  1. The earnings season is off to a good start and PE multiples would benefit from tamer inflation trends.
  2. Bernanke & Co. would realize that higher inflation is not a big threat for now and would be more inclined to consider other monetary measures to prop up the economy.

 

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