8/7/2019 Our Friend, Inflation

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NickBucheleresFebruary17,2011OurFriend,Inflation

TheLaborDepartmentreleasedJanuaryscorepriceindex(CPI)today,whichrelatespriceswithintheeconomyandisregardedasthehallmarkinflationarygaugefortrackingprice

fluctuations.WithnosecessionofBernankes$600billionbondbuy-backinsight,inflationisoneveryonesmind.TheCPIrose0.3%inJanuary,afterrising0.4%inDecember.Thesenumbersaregivingsomeinvestorsfearsaboutallowinginflationtorunoffwiththeirmoney,butthesefearsareseeminglyunfounded.Inflationisactuallyourfriend--especiallyinaglobaleconomicrecovery.

TheabovechartrelatestheS&P500,theXAU(whichtracksgoldandsilverprices),andSPDRETF

WIP(whichtracksinternationalgovernmentinflation)sinceMayof2008.

Aswecansee,theS&P500andinflationmovepositively,andoftentimesmoveattheexactsamepace.Goldandsilverpricesfollowthesamepattern,butareabitmorevolatile.Inflationisraisingthepriceofinputs,whicharerelayedfrommanufacturestoconsumers,but

higherpricesarenotnegativelyimpactingaggregatedemand.Alsorisingwithinflationarenominalwages,andconsumersdonotseemtotakeissuewithpayinghigherprices,astheyarealmostseenasinevitableatthispoint.Risingtideliftsallboats,andthedailyawe-inspiringcorporateearningsreportsaretestamenttothisphenomenon.Withblue-chipscrushingexpectationsfromthetechnologysectortofarming,itlookslikethedualityofinflationisshowingitsnice-face.Insteadofdecreasingconsumerswealth,itisbringingallotherpricestoparwiththeinflatedfrontrunners.