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Dow Jones Perma-Bear: CPI Just Flashed a Major Recession Signal

Another warning light is blinking on the dashboard of the US economy. This time it is the inflation-tied Consumer Price Index (CPI) which has the bears scurrying for their bomb shelters. David Rosenberg, a so-called perma-bear, was filling Twitter feeds with his unique brand of doom and gloom for the Dow Jones and wider US stock market.

Gluskin Sheff Economist: CPI Data Portends Recession Today's CPI data confirmed that the peak in core inflation has been turned in. The YoY trend peaked either just ahead of the last three recessions or just as it was getting started. The NFIB index confirmed that pricing power is fading and fading fast. — David Rosenberg (@EconguyRosie) March 12, 2019

Today’s CPI did miss targets against an expectation of a 0.2% increase relative to the 0.1% reading. The Dow Jones is easing gently off its highs today as well, having lost 53.29 points as of the time of writing.

In isolation, that’s a snoozefest, but Mr. Rosenberg did note something particularly interesting about the data as a predictor of recession. Apparently, he is using price pressure as a sort of alternative yield curve.

Bond-Yield Inversion: a Strong Indicator of Recession

Given that interest rates are always somewhat interconnected with inflation due to the Fed’s approach to monetary policy, this is not particularly ground-breaking. It is interesting, though, particularly with the bond market teetering on the brink of inversion.

All the bearish stars seem to be aligning, and the constellation is Ursa Major. The stock market has been steady, however, and there is a definite sense of the old-guard to Mr. Rosenberg’s comments.

Here’s what his view ignores. Firstly, the Fed doesn’t weight the CPI extremely highly in their consideration because they think it doesn’t get to the root of the issue very well and has too many contravening factors. This means that the PCE (Personal Consumption Expenditure) is more relevant to interest rates. ...

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