Bonds moved higher in August but did not make new highs. However, it is only a matter of time. Most of our inflation work is still cool, but this month we present one of our tools that is mildly disturbing. The commodity spot price diffusion index seems to be on the rise, although not yet in negative territory.
Our weekly work comparing prices of 94 commodities with levels 12 months previous seems to function quite well as a stock market timing device and is also helpful at times with the bond market. At the end of July, it registered a “buy signal” for both. Take a look at this section and see how this has worked out 1973 to date.
At this point there is no indication inflation may be about to accelerate. Some may recall that in the early spring of 1984, this work led us to conclude that 1984 inflation might be a lot lower than most then thought at the time. This section also includes comments on the possibilities of deflation and what might be expected if it does occur. It probably would not be the disaster some seem to think.