360 Degrees: Inflation

...Given today's inflation data, I'll throw a question out: Is inflation already priced into the market? We've known for quite a while that the government inflation measures are pretty goofy, and plenty of market pundits/strategists have insisted that prices are rising much faster than the government says...

It seems to me that many are focusing on where inflation isn't showing up: wages (which is the biggest input, though creeping higher of late), textiles, electronics, etc.

And in all seriousness, I think the key question -- which I've put to Anirvan Banerji off-line -- is whether we're in a cyclical inflationary cycle in the midst of a secular deflationary cycle.

Position: Now asking in public forum

Inflation; Anirvan Banerji 5/17/06 10:04 AM EDT

Yes, Aaron, we're in a cyclical inflationary cycle in the midst of a secular disinflationary cycle (deflationary in some sectors) -- but that cyclical upturn in inflation started a couple of years ago. The real question is not where we are, but where we're headed, and for an answer, it's no good looking at coincident measures of inflation, whether based on the CPI, core CPI, or core PCE deflator. This is why we look at ECRI's forward-looking Future Inflation Gauge, or FIG, which anticipated the cyclical upturn in inflation and kept rising through last fall. It has eased off a bit since then, but I'm keeping a close eye on it to gauge whether the easing in underlying inflation pressures is real and sustained.