There was no inflation in 2008 -- the first year for which this has been the case since 1954. This report has served to further inflame speculation that a deadly deflation spiral is upon us. Meanwhile, the Fed's separate report on industrial production in the US shows manufacturing is still nosediving. US factories, mines and utilites are operating at only 73.6% capacity -- that's a 26-year low, with the multi-month slide in capacity use rate also the most pronounced in 26 years. And like the stock market's resumed slump, this one has much more the look of a determined rot than the Arab-oil-influenced, up-and-down, V-shaped bounce in the early 1980's. It's not an oil spike, but a 20+ year self-inflicted debt binge that's behind our problems this time. This is bad.
Anyway, Asian and European markets at the time I type this are up. And the TIPS spread, though still near record lows, has been rebounding from much of this year. Though buffeted by the PPI and CPI reports of the past two days, it doesn't seem to have been as affected as you think it would be. Its rebound in 2009 remains largely intact as Washington and world capitals across the globe put currency printing presses into overdrive. Note that the dollar has continued to extend its recent slide. That doesn't spell deflation. Remember, it's darkest before the dawn...and markets, including the investors who stand to profit from being right about the future, will be the first to pick up on it.
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