Is “the Worst of the Inflation Scare Over”?

A July 8 Fox Business headline says:

Forget inflation -- deflation could rear its ugly head soon

Here's an excerpt:

Already there are signs that the worst of the inflation scare is over.

The Institute for Supply Management's service sector activity report released Tuesday showed the prices paid component dipped 1.1 points in June.

A separate report from IHS Markit found that while input prices remained elevated, with their second-highest reading on record, costs increased at a slower rate, providing some evidence that the increases may indeed be transitory like Powell has said.

Survey respondents noted a "reduction in concerns over inflation," IHS Markit said.

Elliott Wave International's July Global Market Perspective provided this perspective on the "new highs in business activity" as shown by the Markit Eurozone Composite PMI:

Business growth in the eurozone is accelerating at its fastest pace in 15 years. A flash poll of purchasing managers in the service industry in the eurozone bounced to a 14-year high in May... [C]onsumers become overly confident at major stock market peaks and overly pessimistic at major stock market bottoms. The same thing happens at the corporate level. The IHS Markit Composite Purchasing Managers' Index measures the prevailing economic direction in Europe's manufacturing and service sectors. After three successive months of growth, the June 2021 reading pushed to its highest level since June 2006.


Once again, economists are making the mistake of projecting the trend linearly and indefinitely into the future. "An impressive expansion of GDP will be followed by even stronger growth in the third quarter," says one business economist. (Bloomberg, 6/23/21) At the same time, the financial community is misinterpreting the data as bullish for stocks. "How To Trade Europe's Incoming 'Revenge Spend,'" reads a June 21 CNBC headline. Back in 1999, business was also booming, yet within two years, the economy was mired in the worst economic slump since the Great Depression. The same thing happened in 2007, and it is very likely happening again now.