The money supply is skyrocketing, commodity prices have skyrocketed, and the constraints caused by the pandemic mean supply chains are becoming tight and consumers have pent-up demand pending. These are the arguments made by people who predict that price increases will accelerate through 2021 and beyond.
The arguments sound compelling, and we certainly cannot ignore the fact that commodity markets could have hit a significant low in April 2020. However, prices do not tend to trend in a straight line, at least initially. Rather, when it comes to commodity prices, they tend to follow an Elliott Wave progression with corrective declines as part of a natural rally. Perhaps the chart below hints that such a recession could come.
We last showed this graph of US price inflation expectations back in November, highlighting a triangle that had already been completed, and then we stated that: “… In the coming weeks, expectations for price inflation are expected to rise.” This turned out to be correct, which increases confidence in our other conclusion, which we made in November: “… as soon as this push is completed, there should be a reversal, which will put downward pressure on consumer price expectations. If this triangle represents the fourth wave, and therefore the push up is the fifth, the subsequent reversal could be extremely deep, perhaps even down to the 0.50% low reached this March. ”
Currently, this rate of expectations for US price inflation hovers around 2.06%, which is in line with the previous high of 2.17% reached in 2018, so this would be a good place to end the fifth wave. However, a fall below 1.96% is needed before we can raise the likelihood of hitting a significant high in inflation expectations.translation from here
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