Remember that inflation surge this past spring? About that…

Inflation has been a major concern of those that have steadfastly maintained their presence in the bearish camp. With the unemployment rate at historical lows and now job openings exceeding the number of unemployed people, it would seem that wage inflation should be a major issue. Yet it has not come to fruition, at least not yet. Perhaps technology is playing a role in keeping labor costs low. If your option is not another human but to scrap a whole division of them and use a machine instead the dynamics may play out differently.

But then there is the other side of the inflation picture, commodities or inputs. That had been rising at a good clip. From June 2017 until June 2018 the CRB Index which measures this was up 24%. Commodities were running hot. Surely that would make its way into the mainstream and stall the economy. But the chart below shows that things changed.

Since the high in May the CRB Index is off over 10%, and had retraced 50% of its move to the upside at its low point. The bounce from there was weak and shows signs now of making another push to the downside. Momentum has turned lower with the RSI stalling at the mid line and reversing lower. Should it take out the August low on this leg then a 61.8% retracement would be the next area of interest. That would be a 13% drop from the peak and would bring commodity inflation to a 6% negative on the year from the current 2% negative level.

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