Early Signs of Inflation

The month-over-month producer price index preliminary reading came in at 0.3% today. This rise back into positive territory may indicate the easing of deflationary pressures and growing inflationary forces. The consumer price index, which tends to lag the PPI, showed a 0.2% rise last month. The dramatic decline in crude oil prices at the end of 2008 accounts for much of the fall in inflation measures. Recent upticks from the October lows show that perhaps the Federal Reserve's liqudity measures have put an end to a feared deflationary spiral. In the case that the economy rebounds into 2010, there seems to be no way to avoid hyperinflation. The recent rise in prices is especially surprising given the 6.1% decline in 1st quarter GDP readings. Prices appear to be rebouding while the U.S. economy continues to decline. This data may be a very early sign of troubles to come and provides further credence to the argument for buying gold and commodities as inflation hedges.