NEW YORK (TheStreet) -- The doomsday crowd has been gnashing its teeth about inflation for years.
After the passage of the Troubled Asset Relief Program and the Federal Reserve's Quantitative Easing programs, the inflation paranoia even crept into the mainstream. It seemed a virtual certainty the country was headed for runaway inflation.
Today, after five years of incontrovertible evidence showing hardly any inflation, the market now appears to have discounted the possibility entirely.
Stocks command premium valuations and display impressive technical resilience. Treasury yields are locked in a historically low range while bonds at the short end of the curve pay investors a negative real yield. Gold has collapsed 40% from its highs while commodity indexes like the CRB have gone essentially nowhere for years. Real estate, for all its price recovery lately, still shows activity far below normal.This is not how any of these assets are supposed to behave when inflation is on the horizon. Markets never change on consensus. Trends turn around only when we believe it's a near-guarantee they'll keep going in the same direction they have been. Clearly, the markets believe the trend of "non-inflation" will be continuing indefinitely. This is why we're so quick to dismiss the latest data points. In the last few months producer prices have increased at the fastest rate in a year and a half. The consumer price index (CPI) increased 1.4% in the first quarter, an annualized rate well over 5%. The market doesn't seem to care. But the markets get it wrong a lot. It's also slow to react. The earliest warning signals always come from where few pay attention. Right now, that's wages. One of the reasons why price inflation never ran out of control as predicted is because wage inflation wasn't there to support it. Wages are what keep prices afloat. Evidence is now emerging that wage inflation may finally be picking up. According to the NFIB, the number of companies planning to increase workers has nearly doubled in recent months. This correlates almost perfectly with actual increases in year over year compensation, as one would expect.