For How Long, Inflation Will Remain Subdued? by Angelo Airaghi [Guest Analyst] 5/19/2009

Despite the unstable economy in the U.S. and in Europe, markets are beginning to discount the end of the recession. The U.S. dollar might decline further against major currencies, while various commodities are bottoming out at current levels.

The state of the economy remains critical in the United States, albeit few key indicators are beginning to turn up, and more time is necessary to see a tangible improvements. After having declined 1.7% in March, industrial production decreased 0.5% in April, while capacity utilization, the rate factories are working versus the maximum capacity, printed 69.1%, the lowest level ever recorded since 1967. Nevertheless, numbers should improve in the second half of this year and probably expand in 2010. In effect, the unemployment rate remains a big issue for now. Initial jobless claims for the week ending May 9th rose to 637,000 versus the 605,000 registered the previous week. However, the negative economic growth is subduing inflation, but crude oil appears to be bottoming at current levels, and prices should again heat up over the medium/long term. In April, the U.S. Consumer Price Index (CPI) was unchanged following the slump of 2.8% in gasoline prices. The year-on-year rate is now -0.7%, the lowest level since 1955. However, core rate rose 0.3% supported by vehicle, medical care and tobacco. The U.S. Producer Price Index climbed instead 0.3% driven by food, gasoline and heating oil prices. Yearly, the PPI is now at -3.7%, the largest down move since 1950.


Angelo Airaghi is a Commodity Trading Advisor, registered with the National Futures Association and the Commodity Futures Trading Commission. He has been an active professional since 1990 working for major international financial companies. In the past 10 years, Angelo Airaghi has been an analyst and commentator for national and international media.

This article contains the following sections:

Inflation is low, but for how long?

Europe: running late?

USD/JPY: testing key support line

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