From ContraryInvestor:
For now, there is a relatively divided camp among the investment community regarding future inflation. And for good reason. On one side of the equation, investors look at headline inflation statistics, core inflation readings, lack of corporate pricing power, historically low capacity utilization, and the ever growing presence of a labor cost advantaged China in global product markets and rightly conclude that forward inflationary pressures may remain modest at best. Coincidentally, investors looking at global commodity prices, precious metals prices, housing price inflation, monetary expansion, and what seems an endless domestic credit expansion also rightly conclude that the seeds of future inflationary pressures have not only been germinated, but have sprouted and are now basking in the Fed sponsored warmth of inflationary springtime. In one sense, both arguments are correct. They both have their merits. So just what are investors to conclude regarding forward inflation? What are investors to expect? We wish that we knew the final outcome. But what may be more important than ultimately being right or wrong in terms of longer term real inflationary pressures either being benign or acute is being right about how the market "perceives" inflationary pressures at any point in time. After all, it's these perceptions that will drive real asset prices. In one sense, who cares about the ultimate reality? By the time forward inflation specifics are in plain view, it will be old news. So, just what do we watch to get a sense for market perceptions regarding inflationary pressures? As we move into 2004, the following are just a few of what we believe to be the more important items to focus upon.
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