Keystone's Inflation Deflation Indicator

Time for a measure of the ongoing inflation-deflation battle.

CRB/10-yr Price = 308.76/100.219 = 3.08

Over 4 = Inflation
Between 3 and 4 = Neutral; inflationists and deflationists fight it out
Between 2.9 and 3.0 = Disinflation
Under 2.9 = Deflation

Thus, the current economy is on the verge of falling into Disinflation.  During the August market crash, the Disinflation and Deflation areas were explored shortly before the indicator bounced back up into the 3.1-ish area over the last month or two.

A 3.08 number, and considering the CRB is at 308, remaining above 300, places the need for quantitative easing on hold for a while.  Chairman Bernanke will not act with QE3 until he sees a slip into Deflation that looks to have staying power; the 2.7, 2.6, 2.5 area.  Watching the CRB will provide hints of when QE3 will occur.  As the CRB drops under 300, that will drop Keystone's indicator into Disinflation and cause Bernanke to lose sleep.  If the CRB starts to fall under 290 and then move towards 270, QE3 is not far behind.  For now, Chairman Bernanke has breathing room although we are on the verge of falling into Disinflation.

Note Added 11/22/11 at 10:10 AM: Current prints are 310.84/100.375 = 3.10, remaining in Neutral territory but close to the edge of Disinflation.

Note Added 11/22/11 at 7:46 PM: Current prints are 310.93/100.719 = 3.09. Thus, use the 3.10 level as a reference for Keystone's Indicator moving forward. Keep an eye on the CRB Index.

Note Aded 11/23/11 at 3:49 PM:  Current prints are 306.69/101.031 = 3.03, within a hair of Disinflation now.