The red-hot inflation data appears to be at least contributing to the sudden gold rally this morning. We will see at what point the price cappers step in?

Regards - VHF

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Just...er...86.1% Inflation

George Ure

February 18, 2010

Say, not to ruin the morning or anything, but did you see the Product Price data that just crossed from the Labor Department?

"The Producer Price Index for Finished Goods rose 1.4 percent in January, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. This increase followed a 0.4-percent advance in December and a 1.5-percent rise in November. In January, at the earlier stages of processing, prices received by manufacturers of intermediate goods climbed 1.7 percent, and the crude goods index jumped 9.6 percent. On an unadjusted basis, prices for finished goods moved up 4.6 percent for the 12 months ended January 2010, their third consecutive 12-month increase.

The ugly thing here is what? Well, over three months we've seen finished goods up 3.64% which annualizes to what? Oh, 15.36% annual inflation at the finished goods level based on the latest running three-month numbers.

As if THAT isn't bad enough, the Labor Department figures scream inflation in the crude goods arena:

"The Producer Price Index for Crude Materials for Further Processing climbed 9.6 percent in January. For the 3-month period ending in January, crude material prices rose 16.1 percent, accelerating from an 8.5-percent increase for the 3 months ended October 2009. In January, about three-quarters of the broad-based monthly advance is attributable to a 16.8-percent jump in prices for crude energy materials. Also contributing to the January increase, in roughly equal proportions, the index for crude nonfood materials less energy rose 6.6 percent and prices for crude foodstuffs and feedstuffs moved up 3.2 percent.

And that says WHAT? Compound that three-month period four times for a year's worth and you get an implied crude goods inflation of (might want to sit down for this...) 86.1%.

Not saying we will actually see inflation that high since it could never be admitted in govstats, BUT that means the Fed will soon be under incredible pressure to raise rates no matter what...and that drives a stake through any prospects of a return to higher general levels of employment. (see next story)

That - like it or not - is how the Second Depression is rolling out. Different than Depression One, but certainly best efforts of central government to plan around it, we seem still headed for a rhyming outcome.

Got gold?