In addition to the heated debate over whether the global economy is
experiencing a bottoming process or is just an inventory head fake, the
other discussion is whether the policies of the Fed and other central
banks will eventually lead to a period of high inflation. Inflation will
be a process not an event so not only do us gardeners have to look for
shoots in the economy, we have to also look for the ugly shoots of
inflation. Apr PPI is expected to fall 3.7% y/o/y but the core # is
expected to up by 3.4% y/o/y. While we’ve seen multiple negative m/o/m
PPI headline #’s over the past year, the core has not gone negative
since Oct ’06, notwithstanding the big declines in GDP in Q4 and Q1.
Thus any big moves of oil and food higher can really swing the debate.
Amazingly, crude is still near $60 even after the IEA cut its ’09 oil
demand estimate today to 83.2mm barrels per day, back to where it was in
’04 when crude averaged $43. Supply matters too.
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