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Inflation Ahead, Or A Deflationary Cycle? Here’s The Answer



Inflation Ahead, Or A Deflationary Cycle? Here’s The Answer

As the debate rages between those that think our country is heading for a massive bout of inflation and those that believe we are at the beginning of a deflationary cycle, one economic forecaster has said the charts themselves give a clear answer.

Lakshman Achuthan, the Economic Cycle Research Institute co-founder, said during an appearance yesterday that the outcome is clear.

“Inflation is going up. It’s a leading indicator of inflation, the future inflation gauge, and it’s made a very clear cyclical upturn. And it’s a good (referee) in terms of this fight back and forth between those that think there’s some deflation risk and others that think there’s a huge inflation (risk).”

He said both the Consumer Price Index and the Producer Price Index have turned higher. Additionally, his proprietary future inflation gauge bottomed out months ago.

“Like you were saying this morning, the PPI and also the CPI you see on the chart have started to turn up. Now the future inflation gauge bottomed five months ago. It’s a little tough to read it on the chart, but I’ll tell you it’s a pronounced, pervasive and persistent rise in the top line.”

No Break

This means there won’t be a break in the cyclical uptrend for inflation according to Achuthan.

“The fact that it’s still rising means there is no fresh downturn in this cyclical upturn in inflation, and that’s good information to have. It suggests we have both an inflation cycle upturn and a business cycle upturn going on at the same time right now.”

He says with rising prices in nearly all aspects of the homebuilding process, it’s no surprise that home prices themselves are rising.

“All of this inflation is coming in the goods and maybe the manufacturing and construction sectors. People have been talking about what’s going on in homes, for example. And home price inflation [is] very strong,” said Lakshman. “PPI, even core, and intermediate goods are really above expectations.”

He added that even without a new stimulus package, the economic recovery should continue for at least the next few months.

“When you add it all up, the leading indicators are pointing to a continued business cycle recovery even without some imminent stimulus,” he said.

Beyond the next few months, he said to look at the leading indicators to get an idea of how the recovery is progressing. A slowdown in the leading indicators would be troublesome, he warned.

“What really becomes an issue is if the leading indicators start to falter, start to turn back down. Our work shows that every time that happens, the risk of a correction, an equity market correction, goes way up.”

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