Today's released PPI was significantly below the consensus. It appears that even the significant increase in energy costs that we have seen during the past two months, was not enough to offset low demand and indicate any type of inflation.
We continue to believe that we will face severe inflation during the next 1 - 3 years as the govt continues to print cash to combat the economic downturn. Prices increase as demand grows. However, with so much more money printed and basically thrown out into the market (which partially explains why the equity mkt has gone up the last 2-3 months), only a small increase in demand could drive inflation to very high levels, which may require rate increases, which may stall this entire so-called stimulus push that the govt has attempted to implement.
Its basically a no win situation unless no further stimulus plans are implemented, no other companies are 'rescued' and banks are no longer forced to bat on both sides of the plate (implement stringent credit standards while also trying to help everyone with their foreclosures, not force credit card holders to pay back, etc).
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