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While the Street is rightly focused on the Producer Price Index this morning, I think that the US Industrial Production report needs to be considered as well. The two reports combined, provided a direct path to the same fundamental conclusion we were beating on in our morning call note - Stagflation.

The PPI report came in well ahead of already elevated consensus expectations at +7.2% year over year headline inflation. Meanwhile, the May Industrial Production report missed expectations, coming in light at -0.2% for the month versus the Street expecting another positive #.

While US growth has not slowed (on a reported basis) yet in Q2, that has not been my call. My call is for stagflation to emerge as we exit Q2 and enter Q3.

Many Wall Street economists are calling for a Q3 "recovery". That's a hope, not a process oriented conclusion.
KM

(picture courtesy of: http://www.thevicenarian.com/wp-content/uploads/20070413_money_grip_2.jpg)