Inflation Factors to Look for as Leading Indicators (Part 3)

In our earlier post “Interest Rates, Friend or Foe” http://street-cents.com/2009/06/09/interest-rates-friend-or-foe/#more-679 we spoke of the concerns of higher interest rates and the headwinds that higher rates create.

Being that most investor’s memories do not stretch for many decades, we continue to mention interest rates and their prevailing value as a possible leading indicator for inflation. Here are our inflationary watch dogs that would signal the possibility of inflation coming around the corner:

1. Higher Interest Rates. As we have mentioned before and a current poll is in the works for your opinion.
2. A lowering of the value of our US Dollar.Be aware that foreign countries own much of our government debt and the warning or actual transfer of that debt into another more perceived steady currency can have dramatic effects on the value of our US dollar effectively creating a possible headfake in our inflationary watch.
3. Commodity prices rising. While not a directly linked inflation effect, as the value of the US Dollar goes down, commodity prices may rise. Think the price of Oil !
4. Wage pressures.Unthinkable at this point in the business cycle, workers in an inflationary environment are often apt to push for higher wages to accommodate the lower value of their paycheck.

In our last, and most important part of this series we outline OUR thoughts on the possibility of inflation and our thesis of why or why not inflation may occur. JK