Inquiring minds are taking a good hard look at a series of charts posted by Dave Rosenberg in Friday’s Breakfast with Dave

Consumer Inflation


Restaurants

Home Improvements

Apparel

Movies

Telecom

Books and Newspapers

Grocery Stores



Autos



Electronics

Personal Care Pharma

Dave Rosenberg writes …

There is much more underlying deflation pressure today — core at 1.3% with the CRB having run up more than 40% since February 2004 really tells you something about Corporate America’s ability to pass on cost increases and deliver top-line growth.

Moreover, it looks like the trend in core inflation is going to head even lower because the three-month pace is close to 0% and the six-month trend is down to 0.814% (to the third decimal) which took out the June 2003 nearby low of 0.939%. The last time the six-month trend was this low was back in August 1965, but the difference being that CAPU rates were closer to 90% and the jobless rate was around 4% back then, so there was far less spare capacity in the labour and product markets. Deflation remains the primary trend. The only question for investors is when the equity market figures out that this is not conducive to pro-growth pro-risk strategies.

Rosenberg posted 18 charts representing various prices. Prices above zero and rising are hospital services, delivery services, drug pricing, and airlines.

One has to wonder how much of the hospital and drug pricing is manipulation to get health care passed. Regardless, the score is 14-4.

Bear in mind, I do not believe that prices constitute inflation or deflation. Rather I stick to my viewpoint that inflation is a net expansion of money supply and credit, with credit marked to market.

That last part “credit marked to market” is crucial. There is no doubt credit is collapsing. However, as a result of the Fed’s heroic efforts that have kept zombie banks and zombie corporations alive, the mark to market valuation of credit (debt on the books of banks) has risen.

I cannot prove that because the Fed and the Financial Accounting Standards Board (FASB)have postponed mark-to-market accounting. However, I am willing to admit there has been inflation since March 2009 on the basis of how financial stock are reacting.

At some point however, the stock market will start reacting to actual fundamentals, and at some point investors will stop believing nonsense about the nascent recovery. At that point liquidity will turn, marked to market valuations of debt will again nose-dive, and stocks will take a nasty turn with it.

In the meantime, those who continually tell me that price is what matters need to look at 14 out of 18 charts and tell me they signal deflation or impending deflation, because by their measure they do.

Mike “Mish” Shedlock
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