Only six months ago, I was visiting a large, privately held company and the subject of skyrocketing commodity prices entered the discussion. When I commented that inflation trends were likely headed down as the boil came off emerging market economies, one executive looked at me as though I had to be out of my mind or at least that I was from a different planet. At the time, they were seeing price increases throughout their supply chain.
While it has certainly come the hard way, the headline CPI fell .7% in December after falling 1.7% in November, putting the year over year rate at .1%, the slowest gains since 1954. The core CPI excluding food and energy was flat, translating to a 1.8% y/y rate. Today, instead of inflation concerns, deflation seems more threatening. (There are also those who still fear inflation in spite of the very bad labor market, as the eventual outcome of massive stimulus. With time, we'll see, but as for me, I'm still more concerned about the lack of demand, not a lack of money.)
Perhaps the most interesting point is that six months ago, no one or at least very few people were expecting a plunge in commodities or inflation and yet it happened, historically so. Perhaps the lesson is that in spite of how awful things feel in the economy and the stock market today, perhaps six months from now, we'll feel much better.
Yeah, I know it seems far fetched. But lately, far fetched has meant frequent.
Let's hope it continues!