Inflation is making an "omnipresent and chronic" comeback, warns financial forecaster Lakshman Achuthan


Economic forecaster Lakshman Achuthan sees evidence of a comeback in inflation.

"It's a very clear cyclical upswing," the co-founder of the Economic Cycle Research Institute told CNBC's "Trading Nation" on Wednesday.

He shows the trend on a special chart of his future US inflation meter, a proprietary leading indicator and the core CPI.

According to Achuthan, the future inflation indicator hit its low point five months ago. But until now he was not very confident of a resurgence in material inflation.

"I will tell you that this is a pronounced, ubiquitous and sustained rise in the future inflation indicator," he noted. "The fact that it is still rising means that there is no new downswing in this cyclical upswing in inflation. And that's good information. This suggests that both an upswing in the inflation cycle and an upswing in the business cycle are happening at the same time . "

The latest government data also signals inflation.

The producer price index, or PPI, rose faster than expected in September. It is the first increase since March compared to the previous year. The index of consumer prices [CPI], which measures what consumers pay for goods and services, rose for the fourth month in a row.

"All of this inflation is in goods and maybe manufacturing and construction. For example, people have been talking about what's going on in houses. And house price inflation is very high," Lakshman said. "PPI, even core and intermediate products are really above expectations."

However, Achuthan doesn't think a resurgence in inflation – or even the delay in the coronavirus aid package on Capitol Hill – will disrupt economic recovery. Its leading indicators suggest that the recovery is on stable foundations, at least for the next few months.

"When you add it all up, the leading indicators point to a sustained recovery in the business cycle, even without an immediate stimulus," he said.

However, he admits that the potential impact of the standstill is also on his watch list.

"What really becomes a problem is when the leading indicators stall and then fall again," said Achuthan. "Our work shows that every time this happens, the risk of a correction, a stock market correction, increases significantly."

Disclaimer of liability


Katherine Clark