Not So Sure About That Deflation

If the bull case revolves around QEII and low rates, than inflation is a threat to the bull case. The ISM Prices paid component came out above 70, which is very hot. The recent surge in commodity prices does not help either. The study below from Bespoke shows that spikes in commodity prices have generally been followed by higher CPI inflation.

It seems the only time that higher inflation has not followed a surge in commodities was in 2008 when we were seeing a blow off top and commodity prices completely collapsed afterward. Unless commodity prices collapse odds are that we will see a higher CPI in the coming months.

I have also been seeing some anecdotal cases of higher prices in my readings recently and when booking airfare: From the AP:

The heavy freight division of UPS says it will raise rates by 5.9 percent on Oct. 18.
...On Wednesday, FedEx Corp. said its freight and national less-than-truckload units would raise rates 6.9 percent starting Nov. 1.

Caterpillar is raising prices. From the AP:

Heavy-equipment maker Caterpillar says it will raise prices up to 2 percent worldwide starting in January... The company has already announced its first emissions-related price increases of 2 percent to 6 percent. Those also take effect in January.

Prices are rising at Wal Mart as well. From Bloomberg:

The cost of a 31-item basket of goods at a Wal-Mart in Virginia was $95.75, a 2.7 percent increase from August and a 5 percent gain from the start of 2010, analyst Charles Grom said today in a report. The price is the most since the New York- based analyst began the survey in January 2009.