No One Expects Inflation
Chart 1: Inflation surprises are as low as ’98, just before commodity bull!
Just a quick chart I would like to share with you all. A friend emailed me Citigroup’s Inflation Surprise Index readings, so I overlaid Crude Oil prices against it. You should be able to notice that it can be used as a contrarian indicator for commodity prices.
For example, as commodity prices sell off, majority of analyst (dumb money) become bearish and do not expect a rise in inflation. However, ironically that is precisely when commodity prices bottom out and inflation pressures return. These periods were seen in during 1998, late 2001, late 2003, late 2006, early 2009 and currently throughout 2013 – all of which coincided with commodity price bottoms and buying opportunities. I hardly doubt this time will be different.
