The Keystone Speculator's Inflation-Deflation Indicator; US REMAINS MIRED IN NEUTRAL STATUS QUO, NOT INFLATIONARY, AND NOT DISINFLATIONARY, FOR 3 YEARS

Keystone's inflation-deflation indicator remains in NEUTRAL territory, not inflationary, and not disinflationary. Inflation is choppy sideways for 3 years with the Federal Reserve not making any progress lower to their 2% goal (do not confuse Keystone's non-dimensional indicator above with the actual inflation percentages).

Inflation is neutral according to Keystone's indicator and moving sideways but to correlate it to the Federal Reserve, from the Fed's perspective, inflation is moving sideways above the Fed's 2% target.

The chart above mainly reflects goods inflation rather than services inflation. For decades this did not matter since both moved in unison. In recent years, however, due to obscene central banker money printing that has made the wealthy rich beyond their wildest dreams, and the disruptions of supply lines due to the pandemic, the goods and services inflations have not been in sync.

The expectation would be for services inflation to roll over and come down to join goods inflation and after many months, the data is starting to hint at this outcome. The last four readings of services inflation show three of the months in a downtrend. After all, even when you have dough, how many trips to Europe, and how many $100K Mercedes convertibles, and how many $25K refrigerators do you need?

The oil, coal and natural gas industries are the energy backbone of the United States. President Biden's war on America's energy complex in favor of the glorified gold cart (EV) economy, along with the out of control Congressional spending (fiscal stimulus), and the Fed's money-printing (monetary stimulus), and the Ukraine War, and the ongoing supply disruptions from the pandemic aftermath, create the runaway inflation in 2022.

The 10-year Treasury note 'price' is used for the denominator (bottom number) of The Keystone Speculator Inflation-Deflation Indicator. The 10-year Treasury price is 103.09 with a yield at 4.24% on 4/26/25.

Commodities are in the numerator (top number). The CRB Commodity Index is at 298.46.

CRB/10-Year Price = 298.46/103.09 = 2.895

Above 4.20 = Hyperinflation

Between 3.1 and 4.2 = Inflation

Between 2.5 and 3.1 = Neutral; Inflationists and Deflationists Battle

Between 2.1 and 2.5 = Disinflation

Below 2.1 = Deflation

Interestingly, the indicator is at 2.90 signaling neither inflation or disinflation. The Fed is targeting a 2% inflation rate (not to be confused with the indicator number) and since the indicator above is moving choppy sideways for the last 2 years, inflation can be assumed to be moving sideways above the Fed's 2% inflation target. Keystone's indicator is in a neutral sideways posture but this is viewed as too high inflation from the Fed's perspective, and the public's when they go to the grocery store.

Granted, the calculation above is focused more on goods inflation rather than services inflation. For many decades, you could track commodities, with the CRB, or GTX, and the goods inflation and deflation dictated the overall economy's direction. As the US politicians screwed America over the last five decades, sending jobs overseas and destroying the middle class so stock prices could move higher on the foreign slave labor, the goods production went to foreign nations while the US focused more on services as the major part of the economy.

The debate between inflationists and deflationists over the last few years has been the discussion of goods versus services inflation. The pundits looking for inflation said goods would inflate and catch-up to the rising services sector while the talking heads preaching deflation said the services inflation would drop to join the goods disinflation and deflation as the economy slumps. All bets were off and both sides ended up being correct as the COVID-19 pandemic hit knocking the world on its arse.

The deflationists were correct in 2019 and 2020. Services inflation drops to become more compatible with the goods deflation. Of course, the China Virus pandemic wiped out the airlines, hotels, travel, restaurants and hospitality and leisure industries. Services are knee-capped falling to the ground joining the goods deflation. Men turned into bush people letting their hair grow wildly outward as they avoided the barber for fear of catching covid.

Then the central banker cavalry arrives March 2020 promising to print money forever. Greenspan, Bernanke and Yellen (former Fed chairs) were already in the basement of the Eccles Building running the printing presses like mad. Helicopter Ben loaded-up his chopper with freshly printed Benjamin's dropping the money from the sky into the investment banker's hands on Wall Street.

President Biden, along with Congress, provided way too much stimulus during the pandemic creating a lazy workforce that would rather sit home than work. The staffing shortages were a headache for employers that wanted to get back to normal during 2022 to 2024. Wages rise sending inflation higher. These behaviors, and the obscene amounts of Congressional (fiscal) and Federal Reserve (monetary) stimulus, send inflation to the moon.

When the Fed and Congress tag-teamed in March and April 2020 with trillions in stimulus, billions went into the US stock market pumping it to record highs. A few hundred thousand workers left the workforce either retiring or caring for loved ones after the pandemic, creating a massive labor shortage as the pent-up demand hit in 2021 and 2022.

Rising wages create inflation. The lack of inflation and ongoing persistent deflation for many years was due to the stagnant wage growth. Inflation cannot exist without wage inflation which had not occurred for many years until 2021 and 2022. In 2025, wages are moderating which will keep inflation at bay.

The inflation in recent years is mainly due to energy, food, insurance, and rent/utility costs. People notice higher gasoline and food prices more than other price changes. The wealthy class, made super rich by the Fed's money-printing over the last couple decades, continue to spend money which staves-off an overall recession in America, for now. There are signs that the wealthy are beginning to cut back on their spending.

Inflation in 2022 ran higher to try and match the 2011 highs. Back then, traders were convinced that rates would continue higher but instead the peak was in. Time will tell if the inflation peak in May/June 2022 will hold; so far it has 3 years later and the poke higher to begin 2025 petered out with the indicator falling back into neutral territory.

The answer to the inflation-deflation debate is both sides are right and both are wrong since the indicator sits at neutral. The path to disinflation is more likely if the economy sours. People would lose jobs and the stock market would drop but only until the Fed steps in with easy money by lowering rates and then equities will rally. The people propping up the economy right now are the upper middle class and wealthy because the Fed's easy money made them rich beyond their wildest expectations driving stock prices to the moon (at the expense of the rest of society).

Since services inflation is moderating flat to down, the goods inflation will take on more responsibility for the path forward of overall inflation. The CRB Index ran higher after Trump's election ushering in more inflation and then topped-out in February and fell back down providing recent data showing a slight moderation to inflation. If the Trump Trade and Tariff War was not occurring, the case could be made for a continued sideways move with inflation but would that really be so bad? No.

However, there is a big orange head sitting on the living room sofa. If King Donnie creates crazy inflation due to his tariff games, goods inflation may run strongly higher sending inflation strongly higher. 

There is good news and bad news for Federal Reserve Chairman Powell. The bad news is that the Fed is making zero progress for 3 years at lowering inflation to their 2% goal. Oh no, well, what is the good news? The good news is that inflation is not trending higher either for the last 3 years. Inflation is choppy sideways for over 3 years with the boil now coming off the services inflation numbers (even the rich are running out of money they want to spend). Inflation is stuck in a sideways pattern above the Fed's target.