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Monday, December 23, 2013

Joey the Weasel asks if inflation is coming back


BI - will inflation come back? Joey the Weasel has brought it up:
Indeed, there are signs that the story is changing.

Owners' equivalent rent — which is how housing costs are imputed into the CPI — is showing signs of lifting off.

Meanwhile, headline measures of inflation lately have been dragged down by factors that don't seem likely to persist.

The year-over-year rate of growth in medical inflation has plunged lately, and the widespread belief is that this is likely to bounce back up at least a bit.

Meanwhile, we're benefiting from a major drop in gas prices compared to last year.

The gas trend might persist, but it's hard to know.

Meanwhile, the tightening of the labor market looks likely to continue as the economy gains traction in 2014 (which is a good bet, as we explained here).

And for the first time since the crisis ended, households are actually taking on more credit overall.

So it seems likely that inflation — something just hasn't been an issue at all in recent years — is going to be at least somewhere on our radar again.
All fantastic points.

Then again, Joey, if this is a new secular bull market, maybe we'll see a continued drop in commodity prices? What did commodities do in 1987-2000? As well, if Rosie's capex cycle starts in the US, what will that productivity improvement mean for inflation?

Also, Joey: if inflation is coming back, then maybe we need to allocate some of our portfolios to... um... some sort of shiny yellow metal?

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