Is Inflation Poised to Rise?

• Posted by Greg Harmon
• on April 30th, 2015

There has been no sign of inflation for 6 years. This despite interest rates at zero for that entire time. This has been one metric that has allowed the Federal Reserve to keep interest rates at zero. Their mandate is twofold: focusing on both the economy and inflation. Without inflation, no need to raise rates.

But what if that is turning around? One measure of inflation, the CRB Index, may be showing that now. It is not the Fed’s most popular measure of inflation, the PCE, but it does measure a broad basket of goods.

The chart above shows the CRB Index since the Financial crisis. There are a few things to note in the chart. First, at the top, the RSI, a momentum measure, has been at extremely ‘oversold’ levels. oversold does not really mean anything here other than the move lower happened really fast and with gusto. But it is bouncing now.

The next is the CRB itself. It has shown that when it crosses the 20 week moving average that it tends to change direction. There are 6 times noted in this chart where that has happened. Now may be the 7th time. This is happening as the CRB puts in a bottoming pattern , and a possible double bottom with the 2009 low. Finally, the MACD, another momentum indicator, is also reversing to the upside.

It is still a long way form zero inflation to the target rate of 2%. And supposedly the Fed does not like this measure of inflation. But perhaps this can help explain why the FOMC is not in such a big hurry to raise rates.

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