Monday, August 21, 2006

Hussman Weekly Commentary: Data Dependent

Hussman Funds - Weekly Market Comment: August 21, 2006 - Data Dependent: "Despite the market's reaction, the hope that inflation is slowing is hardly supported by the data. The 'great news' on the CPI wasn't even outside the bounds of rounding error, while the PPI figures were actually of significant concern. Sure, the prices of some volatile items like eggs and fish fell steeply, but the improvement in the PPI for 'finished goods' was overshadowed by continued pressure in the PPI for 'intermediate goods.' Here's the picture that concerns me.



Over the past year, consumer price inflation has clocked in at 4.15%. Producer price inflation (finished goods) has been a similar 4.12%. But if you look at intermediate goods, we're currently at an inflation rate of 8.83%. That's the most abrupt widening in the spread between intermediate and finished goods since the 1973-74 oil crisis. Moreover, if we look at points in history when prices for intermediate goods have outpaced prices for finished goods over a 6-month period, we've also seen, on average, an acceleration in the PPI finished goods inflation rate over the following 6 months."

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