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March’s ISM Non-Manufacturing Report on Business confirm just what we have been seeing on the inflation front: more acceleration to the upside.

The March ISM Non-Manufacturing survey came in at 55.4, up 4.5% sequentially and above consensus, which was at 54. Going back in time, this is the highest reading since May 2006! Similar to last week’s ISM Manufacturing report, this release screams inflation. Even the service industry, whose costs aren’t necessarily married to the price of commodities like their manufacturing counterparts, is expecting inflation to accelerate meaningfully in the near-to-intermediate future.

Naysayers and tellers of narrative fallacies will point to all the unemployment figures, slack numbers, and core CPI readings in order to keep alive their fledgling Depressionista narratives. That’s fine. They can miss the bus and be late to class all they want. Fortunately for us (and the bond and currency markets), we’ll be at our desks when the bell rings and global cost of capital will start to rise.

Here’s a current snapshot of the global inflation picture:

  • ISM Manufacturing for March just made another higher-high at 59.6 (versus 56.5 in February).
  • Prices Paid continue to ramp, coming in at 75.0 in March (versus 67 in February).
  • After shooting up another +7.8% last week, oil prices are hitting 17 month highs ($85.35/barrel).
  • After melting up another +5.9% last week, copper prices are hitting 20 month highs ($3.61/lb).
  • 2-year US Treasury  yields are up +37% in the last month and hitting new highs again this morning at +1.10%.
  • Russian stocks are up again this morning, inflating their petrodollar stock market to +12.1% YTD.
  • Japanese stocks were up again overnight, inflating their currency debased stock market to +7.5% YTD.
  • Turkish inflation for March was reported at +9.6% year-over-year growth.

While we take some issue with the U.S. government's calculation of inflation (they’ve changed the calculation nine times since 1996), even federal economists have reported inflating prices this year. The January CPI came in at 2.6% and February reported at 2.1%. We expect March figures to accelerate even further. There will come a point in the next 3-6 months when He Who Sees No Inflation will no longer be able to be willfully blind towards inflation picture.

When you keep feeding the four-ton elephant in the room (which Bernanke is doing with his “extended and exceptional” emergency interest rate policy of ZERO percent), there will come a point where you can’t avoid bumping into it. We can only hope that he bumps into it soon and ready to reacts in a manner that takes into account the best interests of the citizens who actually feel in their wallets ALL the components of an accelerating CPI report. Unfortunately for America at large, Helicopter Ben has only raised the Fed Funds Target Rate once since taking over back in early 2006 (June 29th, 2006 to be exact). Let’s just say experience is not on his side.

The next FMOC meeting is scheduled for April 27th - 28th.

Darius Dale


The Elephant in the Room - ISM Non Manufacturing


The Elephant in the Room - Fed Funds Target Rate