Inflation is about to fall—and fall hard

While recent measures of inflation — from producer prices and consumer prices to the PCE deflator (the Federal Reserve's preferred gauge of inflationary pressures) — have all approached a 2-percent year-over-year gain recently, it would appear that Janet Yellen's recent testimony will prove spot on. Inflationary pressures, particularly in food and energy costs, will likely prove "transitory." 

Agricultural commodity prices, excluding meats, have crashed. Corn, wheat and soybean prices have plummeted on expectations of bumper crops around the world — particularly in the United States. Heavy rains in the growing regions have altered the outlook for drought-stricken areas (except California) and have led to a major decline in prices. 

Power bills are likely to fall this summer — a boon to disposable income. Gasoline prices, on the flip side, remain stubbornly high, but could easily decline if markets sense that geopolitical risks do not escalate beyond current levels. 

Even more telling is the level of interest rate and the slope of the yield curve. As I write, the yield on the 10-year Treasury note is below 2.5%, as the yield curve is flattening.

DYI Comments:  Until Boomers begin leaving the workforce in serious numbers will inflation raise up it's head.  This is due to Boomers continuing to consume creating a labor shortage plus the costs of Medicare and Social Security.  The inflation will mount as we enter the 2020's, until then disinflation/deflation is the higher probable outcome.  This of course will drop interest rates as well.

DYI