Well, I think it’s becoming pretty clear where the commodity price inflation is coming from – China and genuine economic strength. The entire inflationist argument in the United States has been pretty much dead wrong for over two years running – whether you believed in hyperinflation, high inflation or default due to “money printing” you have been well off the mark. This morning’s PCE prices data was just one more sign that disinflation rules the day and deflation remains the greater risk in the United States (via the Cleveland Fed):
“The Personal Consumption Expenditure (PCE) price index rose at an annualized rate of 1.1 percent in November, compared to a 2.0 percent increase in October. Excluding food and energy prices (core PCE), the index rose 1.0 percent during the month and is up just 0.8 percent on a year-over-year basis. After excluding non-market-based items—such as financial services furnished without payment—the core PCE price index rose 1.1 percent in November, offsetting a 1.1 percent decline in October, and is up 0.8 percent over the past year.”
N.B. – Three’s still little to no sign that inflation is working its way into the system via QE2 (although I do believe inflation fears have contributed somewhat to the surge in commodity prices). Despite all of the incessant shrieking over “money printing” and other inaccurate descriptions of QE and its impact on the economy there is still almost no signs thus far that inflation is making any sort of sustained pick-up. And that’s not surprising to anyone who actually understands that QE is a non-event.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.
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