[CowboyJay]

"To say there is no inflation is to ignore the commodity markets."

BTTT!

Double-digit commodity inflation. The only things that haven't inflated much in price are goods manufactured overseas. So not much overall "consumer" inflation (as measured by official CPI), but plenty of "producer" inflation.

Companies getting their margins hammered by commodity inflation move to protect their margins. They cut costs anywhere they can, and that mostly means cutting payrolls and R&D budgets. These companies don't hire, don't innovate, and eventually close due to margin compression. Supply-shock happens when PPI outstrips CPI. Some people use the expression "stagflation", but I like "supply-shock" better, as it can happen even during periods of relatively low inflation (that is if you trust the numbers coming out of the BLS). Manufacturing firms are especially vulnerable, since their consumption of commodity is much higher as a percentage of overall expenses.



Anytime that red line sits higher than the blue one, it's bad news for goods producers (and the employment market).

[11th Commandment]

Very informative reply so thank you. I read an article a while back on actual inflation vs. core inflation. The reason for only measuring core inflation is that food and energy is seen as volatile and the theory is the two will normalize over time. I analogize it to EBITDA vs. Actual cash flow over time- eventually they will equal out. However, a study was done and found that actual inflation over time was 5% higher than core inflation. At first glance, this did not seem significant to me given the 10 year period, but apparently to much smarter statisticians this was a significant variance.