Paying the Price for a Long Expansion

Looking at a few possible outcomes considering the recent reversal in price data.
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Last Kiss

JACKSON HOLE, Wyo. -- They are now

all heading higher.

The

Producer Price Index

for finished goods was falling at a 0.6% year-on-year rate a year ago.

It is

rising at a 2.7% rate now.

The core (excluding food and energy) finished-goods index was rising at a 1.4% year-on-year rate a year ago.

It is rising at a 1.9% rate now (a chart available on our indicators

page shows that it burped along the way).

The PPI for intermediate goods was falling at a 2.9% year-on-year rate a year ago.

It is rising at a 2.4% rate now.

The core intermediate-goods index was falling at a 1.5% year-on-year rate a year ago.

It is rising at a 1.1% rate now.

The PPI for crude goods was falling at an 18.4% year-on-year rate a year ago.

It is rising at an 11.6% rate now.

And the core crude-goods index was falling at a 15.6% year-on-year rate a year ago.

It is rising at a 7% rate now.

Elsewhere?

The

Philly Fed

six-months-ahead prices-paid index

rose to 43.7 in October from 23 in September. The 44-plus points it has tacked on since November 1998 goes down as its largest 11-month increase of the cycle.

The

NAPM

price index

rose to 69.4 in October from 67.6 in September. The 38-plus points it has tacked on since December 1998 goes down as its largest 10-month increase of the cycle. The deliveries index, meantime, just hit a level not seen since early 1995.

The

CIBCR's

Leading Inflation Index is rising at 6% annual rate and the

ECRI's

Future Inflation Gauge is rising at an 8.6% annual rate. Both mark four-year (plus some) highs.

Pinch a Loaf

Now what?

What happens to the lagging inflation indicators (the consumer price ones) when the leading ones are all sending strong upside signals?

One of two things.

(a) They do not end up rising.

(i) Maybe pipeline cost pressures just disappear all on their own.

(ii) Maybe firms eat them (and grow productivity) in perpetuity.

(iii) Maybe the central bank steps in and squashes them (as it did in 1994).

(b) They do end up rising.

(i) Harmfully so (as they've done on nine separate occasions since the 1940s), in which case central bankers play damage control in the wake of the mess they've made.

Pooper-scoopers all around.

Epilogue

The (a) (i) option seems overly hopeful.

The (a) (ii) choice has an awfully altruistic (and optimistic) ring to it.

We should all (in this correspondent's opinion) be cheering for (a) (iii).

And markets probably ought to consider (b) (i) more of a possibility (even if only slightly) than they do.

And hey. Let me get your opinion on something (see poll)?

Given the risks to which the numbers above point -- and considering that we all know what markets will do if they don't tighten -- are these

guys really thinking about not taking back the last of the three bonus easings they threw us a year ago?

Side Dish

What will the Fed do next week?

Hike and keep bias to tighten.

Hike and move to neutral bias.

Not hike and keep bias to tighten.

Not hike and move to neutral bias.

San Dimas High School football rules.