Consumer Inflation Verging on Breaking Out in the US

The October Producer Price Index in the US released yesterday showed a 0.2% increase over the previous month. This increase comes despite a massive decline in energy prices over the last 2 months. Most indices contained within the PPI moved higher showing broad increases.

Examining the energy markets we see in the improvement in oil prospects for the US has caused OPEC nations such as Saudia Arabia to hold high production levels hence causing oil prices to soften. At between US$65- $80 per barrel oil and gas fracking becomes unprofitable and we see new equilibrium prices occurring around this US$70-80 level occurring in the near term. Longer term pricing remains dependent on global economic activity. we remain wary of the potential for slowing global economic growth.

In line with our forecast contained in our article The End Long Game 2009-2018  we liken this time to the phase 1925-1929 where the bulk of the inflationary thrust occurred in asset values such as stock markets and property prices.  This has certainly been the case since 2009 as consumer prices have remained stable. Given the vast amount of money that has entered into the system since 2009 however, we may see that inflationary effect now beginning to spill over into consumer prices.

At this stage we remain on target to meet our long term predictions as expressed in The End Long Game 2009-2018. We will shortly update our long term scenario to incorporate the latest evidence, alternative scenarios and predictions.