Keystone's Inflation Deflation Indicator

A helpful indicator that assigns a number to settle the inflation deflation debates.  Taking a look at Keystone's Inflation Deflation gauge;

10-year price is 104.438
CRB = 341.82

CRB/10-yr = 341.82/104.438 =  3.3

Over 4.0 = Inflation
3.0 to 4.0 = Neutral; inflation and deflation battle rages on
2.9 to 3.0 = Disinflation
Under 2.9 = Deflation

Previous Values:
July 2008 commodities bubble = 4.3
March 2009 equities market bottom = 2.0
January 2010 = 2.9
May-June 2010 as eqities markets crumbled = 2.5
May 2011 after multi-month QE 2 rally = 3.6
August 2011 = 3.3

The indicator shows a value of 3.3, so its in the neutral territory but closer to disinflation than inflation. The indicator peaked a couple months back at 3.6 but never even remotely threatened the 4.0 level, thus, Chairman Benrnanke's case for transitory inflation is bolstered by this data. If the food and commodity inflation was a major problem, the indicator would have moved up over 4.0 like it was in the summer of 2008 during the commodity bubble back then. It did not.

Note how the disinflation and deflation scenario plays out in concert with equities markets languishing lower, and placing bottoms.  Use this gauge as a guide moving forward to help determine when Chairman Bernanke will announce QE3.  See that last summer when the markets were saved from going over the falls with QE2, the indicator was firmly in deflation with a 2.5 value.  Thus, watch the indicator moving forward and as we slip further into deflation, the 2.5-2.7 area will tell you that Chairman Bernanke is ready to step in with QE3.

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