As Dennis Gartman used to say: “inflation, where is thy sting?”  Here we have a booming commodity market with the CRB index experiencing a classic triple-top, and yet, underlying inflation is barely existent.  Headline inflation came in at a mere +0.1% MoM and the YoY inflation rate is at a paltry 1.1% rate.  The core CPI (which excludes the effects of food and energy) was up by less than 0.1% MoM and the YoY, at 0.8%, is actually overstating things because the three-month pace is running at a tiny 0.4% annual rate.  And this is occurring despite a 3% growth economy, massive fiscal and monetary steroids, and what has been for the most part, a squish-soft U.S. dollar and surging raw material prices.  If any or all these developments shift into reverse for whatever reason, then at the least a mild deflationary backdrop is sure to ensue.  While there is concern over bond supply from the fiscal largesse, make no mistake — inflation is twice as important for the direction of long-term interest rates.

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