The Lehmann Letter (SM)
The last letter reported that wholesale prices – depressed by falling fuel prices – fell last month. Today’s report from the Bureau of Labor Statistics confirms the spillover into retail prices: The consumer price index (CPI) did not budge in April, although it would have grown absent the dip in fuel prices:
To repeat: Do not fear surging inflation, no matter how much the Fed eases monetary policy and no matter how low interest rates remain. Weak demand = Weak inflation. That’s the equation.
Want proof? Examine the chart below. Inflation has remained mild since the last recession, despite the most expansionary monetary policy since the end of WWII. (Contrary to conventional wisdom, this letter believes that exuberant borrowing and spending generated the 1970s inflationary spikes. Rising oil prices were a consequence, not a cause.)
Meanwhile, the Census Bureau today also released its report on March inventory growth ($65.0 billion) and the inventory/sales ratio (1.27):
That’s a good report because sales are growing more rapidly than inventories despite robust inventory growth. Put differently (and exaggerating): Sales are so strong that businesses can’t restock their shelves quickly enough.
The reports on prices and inventories are good reports. Now, if only housing could perk up…………….
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