Inflation (CPI) Anticipation

Macro Perspectives

Building on our conversation from Friday, the 12% decline in gas prices last month is a good clue for what to expect out of Tuesday's August inflation report.

The report should show a slowing in the inflation rate. For another clue, let's take a look at what's happening in China, where the products are made that we will be buying in the many months ahead . . .

This report on Chinese Producer Prices for the month of August came out on Friday. Notice on the far right of the chart, prices were screaming higher late last year (at 13.5% year-over-year rate). It was the hottest reading in 26 years. Meanwhile, the Fed was still playing the inflation denial game. This data was clearly telling us what was happening, and what was coming . . . and we have seen it.

But this number has since been falling like a stone, for eleven consecutive months - now at just 2.3%.

The rapid fall in price pressures in China aligns with the readings in the global PMI. The index in the chart below is derived from surveys of private sector manufacturing and service executives from 40 countries;

• A reading above 50 is expansionary activity (improving).

• A reading below 50 is contractionary (deteriorating).

Its well below 50.