Inflation's Ripples and the Double Dip

By Chip Hanlon | May 19, 2008 | 9:25 AM | 1 Comment

In thinking over a few recent global headlines it struck me that despite all the talk about inflation this year, most may not realize that its full effects have yet to be felt because it unfurls in a rippling process.

For example, Asian airlines may soon be cutting routes and raising fares to offset higher fuel costs, as highlighted by Cathay Pacific in recent weeks. Meanwhile, Japanese automakers Honda and Toyota are being hit with substantial steel price increases, which both will pass on to customers to the extent possible.

Painful as it may be to hear, consumers have yet to feel the full effects of recent hard asset inflation as the ripple effects are still playing out.  This has a couple of implications, but here's the big one that I'm starting to open my mind to: the "Double Dip."

I've been bullish on stocks this year and have asserted that as a discounting mechanism, by turning up the market would be predicting economic recovery. I still hope a lasting recovery will result, but one can't invest on hope. Because consumers are going to be hit by still higher prices in coming months, investors should keep this in mind as a possible cause of another recession in the intermediate future.

I say "another recession" because I subscribe to Michael Pento's theory that we already experienced recession in Q4 2007-Q1 2008, and I happen to believe we're likely emerging from it now, as I gave a nod to in this recent article.

Thus, I continue to hope that any economic recovery will be robust, but I am going to be keeping my eyes wide open to the possibility that we'll run into another (inflation-led) downturn in coming months based on consumer price hikes that have yet to hit Main Street. Keep hoping the current market rally is for real, but keep in mind it might be one big sucker's move due to the fact that, despite benign CPI data, consumer price inflation in the real world is still on the rise.

And that's without all of us having felt the full effect of $125 or higher oil.

almost right it's a sucker's rally, alright. only hting is we never recovered from the recession and the double dip you predict will be our overleveraged economy ggoing down the toilet into depression. McCain or Obama, it doesn't matter. the path is clear Submitted by 1 big depression (not verified) on Mon, 2008/05/19 - 10:46am » reply |