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The guest commentary below was written by Jesse Felder of The Felder Report. This piece does not necessarily reflect the opinion of Hedgeye. 

Dr. Copper Delivers A Diagnosis Of Inflation - 3 3 2021 12 54 10 PM

A little over a year ago, I shared a chart of the copper price writing, “A breakout above that [upper trend] line would suggest that inflation (even stagflation), after being written off as a relic of the past, could finally be making a comeback.”

Well, the copper price broke down in an epic fakeout last year before reversing and breaking out, in convincing fashion, to the upside.

Dr. Copper Delivers A Diagnosis Of Inflation - Screen Shot 2021 03 03 at 9.10.17 AM

They call copper “doctor” because he’s supposedly got a PhD in economics.

And when it comes to inflation, it’s certainly true that he is far more accurate with his forecasts than the vast majority of economists. The chart below plots the annual change in the copper price shifted forward two years along with core CPI.

There’s a fairly tight relationship here which implies Dr. Copper is relatively adept at predicting inflation trends.

Dr. Copper Delivers A Diagnosis Of Inflation - Screen Shot 2021 03 03 at 9.11.29 AM

The recent breakout in the copper price suggests core inflation is likely too low at present and will soon begin to trend higher over the next couple of years.

Because asset prices of all sorts have seemingly discounted a ‘lower for longer’ environment in both inflation and interest rates, this signal may be more meaningful than it might otherwise be.

EDITOR'S NOTE

This is a Hedgeye Guest Contributor piece written by Jesse Felder and reposted from The Felder Report blog. Felder has been managing money for over 20 years. He began his professional career at Bear, Stearns & Co. and later co-founded a multi-billion-dollar hedge fund firm headquartered in Santa Monica, California. Today he lives in Bend, Oregon and publishes The Felder Report. This piece does not necessarily reflect the opinion of Hedgeye.