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Inflation is making a 'pervasive and persistent' comeback, economic forecaster Lakshman Achuthan warns

Trend points to inflation comeback that's 'pervasive and persistent'
Trend points to inflation comeback that's 'pervasive and persistent'

Economic forecaster Lakshman Achuthan sees evidence inflation is making a comeback.

"It's made a very clear cyclical upturn," the Economic Cycle Research Institute co-founder told CNBC's "Trading Nation" on Wednesday.

He shows the trend in a special chart of his U.S. future inflation gauge, a proprietary leading indicator, and core CPI.

According to Achuthan, the future inflation gauge bottomed five months ago. But he didn't have a high conviction view on a material inflation resurgence until now.

"I'll tell you that's a pronounced, a pervasive and persistent rise in the topline future inflation gauge," he noted. "The fact that it's still rising means there's no fresh downturn in this cyclical upturn in inflation. And, that's good information to have. It suggests we have both an inflation cycle upturn and a business cycle upturn going on at the same time."

The government's latest data is also signaling inflation.

It reported the producer price index or PPI rose more than expected in September. It marks the first year-over year gain since March. Meanwhile, the consumer price index or CPI, which tracks what consumers pay for goods and services, saw an increase for the fourth month in a row.

"All of this inflation is coming in the goods and maybe the manufacturing and construction sectors. People have been talking about what's going on in homes, for example. And home price inflation [is] very strong," said Lakshman. "PPI, even core, and intermediate goods are really above expectations."

But Achuthan doesn't think an inflation resurgence — or even the coronavirus aid package delay on Capitol Hill — will disrupt the economic recovery. His leading indicators suggest the recovery is on stable footing for at least the next several months.

"When you add it all up, the leading indicators are pointing to a continued business cycle recovery even without some imminent stimulus," he said.

Yet, he acknowledges the potential impact of gridlock is on his watch list, too.

"What really becomes an issue is if the leading indicators start to falter, start to turn back down," Achuthan said. "Our work shows that every time that happens, the risk of a correction, an equity market correction, goes way up."


Economic forecaster Lakshman Achuthan issues inflation warning
Economic forecaster Lakshman Achuthan issues inflation warning