Ahead of the PPI report today, CPI Wednesday and capacity utilization today within the IP report, which will be the measure of the output gap that some have hung their hat on as keeping a lid on inflation, the inflation/deflation talk needs to remember disinflation as the middle ground. Disinflation is a decline in the rate of inflation as opposed to deflation which is when prices outright decline. I raise this because I believe all we’ve seen so far has been disinflation that will reverse and lead back to inflation. Inflation is not a one time event, it is a monetary process that will eventually lead to higher prices. May PPI is expected up by .6% but capacity utilization is expected to fall to 68.4%, the lowest on record dating back to 1967. Germany’s ZEW investor confidence # in their economy was 10 pts more than expected at the highest since May ’06 and the euro is rallying in response and is lifting commodities too. UK CPI was also higher than forecasts. US Housing Starts for May are out at 8:30am.

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