Gruntal & Co.'s Joe Battipaglia
Today's topic: Not a credible inflation threat
Joe Battipaglia
Ask the Analyst
Oil prices are rising, and commodity prices are strengthening. This is remarkable considering that last year?s main concern was over falling -- not rising -- prices. Instead of deflation, the question is now whether rising oil prices will hurt the inflation outlook. I believe that higher energy costs will remain at the production level and not be passed through entirely to finished goods or consumers.
Beyond the oil impact, the inflation news remains favorable. In recent days, both the producer and consumer price indexes posted flat core readings of -0.1% and 0.1%, respectively, for August. Since short-run energy costs are notoriously volatile, investors correctly downplayed the energy component and focus instead on the core rate that excludes the effect of volatile energy prices.
Another positive sign is that other commodity prices are not experiencing similar price increases Since demand conditions affect all industrial commodities similarly, truly excessive demand should result in materially higher prices across almost all commodities -- not just one. Although global demand is healthy, the current expansion bears little resemblance to the truly strong growth from Asia and Latin America earlier this decade. My year-end targets for the Dow Jones Industrial Average, S&P 500, and NASDAQ composite indexes remain at 12,000, 1,600, and 2,900, respectively.
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