The Inflation Indicator by John A. Lohman
Former Amex trader John Lohman delves into an inflation indicator that leads the Consumer Price Index (CPI) by about six months.
In 1992, technician John J. Murphy wrote a series of articles in STOCKS & COMMODITIES that detailed the
interrelationships between markets and the importance of studying each market in the context of others. This concept, better known as intermarket analysis, is perhaps one of the simplest yet most useful means of comprehending and anticipating major shifts in the stock, bond and commodity markets.
One of the driving forces of the links between these markets is the level of inflation. Meaningful changes in general price levels affect both financial and agricultural markets. While many analysts and economists use highly complex multivariate models to forecast levels and trends in inflation, there is a very simple indicator that tends to lead changes in the inflation rate by approximately nine months and is extremely simple to calculate and interpret.