Inflation Double-Header: CPI & Commodity Prices
Jul 21st, 2008 | By Doug Casey | Category: International InvestingA double-header Casey’s Charts compares inflationary pressures in the U.S. and Canada. Using government numbers – cooked as they be – it’s still evident that inflationary pressures have reached highs not seen in the last 25 years.
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July 21, 2008 |
The Producer Price Index (PPI) and Consumer Price Index (CPI) are both measures of inflation tracked by the U.S. Department of Labor.
In the 1970s and 1980s, the PPI was an excellent leading indicator of where the CPI was headed. Producers, after all, are the first ones forced to absorb rising commodity costs, which eventually they pass on to the consumers in the form of higher prices for their end products.
Since 1990, the PPI and CPI tend to move in tandem, showing that producers are anticipating commodity costs faster and passing them directly on to the consumer. In June 2008, soaring commodity prices pushed the PPI to its fastest rate of increase since February 1980.
North of the border, a similar scenario is playing out. The Bank of Canada’s “Commodity Price Index” is a broader and more direct measure of inflationary inputs to the economic system than the U.S. PPI, but the story is the same.
The Commodity Price Index reached a new record-high rate of increase in June 2008, beating the former record of 53.0% set in February 1974 (Statistics Canada starting tracking commodity prices in 1972).
While commodity prices show their volatility in this chart, they also prove to be a good indicator of which direction the Canadian Consumer Price Index is headed next (here’s a hint: it’s not down).
Both governments cook their numbers to a certain degree in an effort to play down inflationary influences, and keep panic at bay. But these charts clearly indicate that inflationary pressures today are reaching levels not seen in the last 25 yearsSource: Inflation Double-Header: CPI & Commodity Prices
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Doug Casey is a contrarian investor, sought-after public speaker and author of several books. His work "Crisis Investing" held the position of # 1 bestseller on the New York Times list for 26 consecutive weeks. Doug's unusual views on the economy - and just about everything else - have gained a huge following in the investment community, and it certainly helps that his stock recommendations of undervalued junior exploration companies have made his subscribers millions. Now in its 27th year, Doug's monthly newsletter, the International Speculator, is one of the most established and esteemed publications on gold, silver and other natural resource investments. Together with the Casey Energy Speculator, it covers a broad range of carefully selected stocks with the very real potential of double- and triple-digit returns within 12 to 24 months.