The document discusses recent inflation trends in the United States and globally. It notes that US CPI is currently at 2.5% due to increases in energy, transportation, housing, and medical care costs. Wages are also rising. While the Fed is comfortable with inflation slightly above its 2% target due to years of below target inflation, continued rises driven by energy could cause inflation to outpace any moves by the Fed to control it. The document examines scenarios around inflation and oil prices on the HiddenLevers platform.

1. Sweating Inflation?
31 May 2018
War Room

2. War Room
Idea Generation
Macro Coaching
Scenario Updates
HiddenLevers runs on SCENARIOS like Instagram runs on PHOTOS

3. The Skinny
Pricing Pressures
Symmetric Inflation
Scenarios: Inflation
Oil Prices
Sweating Inflation?
UPDATE
NEW
Nah, 2% tops

4. HiddenLevers
THE SKINNY

5. Sweating Inflation? – Why Ripe?
CPI now 2.5%
Fed okay with
CPI above 2
CPI well above 2%
Oil above $80
Wages Rising

6. Sweating Inflation? – Let’s take a Look
See it on HiddenLevers

7. Fed is letting economy run hot
because it ran so cold
Sweating Inflation? – Take-aways
CPI rise
driven by
energy
Use annual inflation
numbers from HL or BLS,
not media monthlies.
Baseline Oil + Inflation Scenarios in
motion

8. HiddenLevers
PRICING PRESSURES

9. PRESSURE: Long-Term US Inflation
sources: Advisor Perspectives, HiddenLevers
1870-2018 avg inflation rate: 2.5%
Post WWII avg inflation rate: 3.8%
CPI has moved well above 10y moving
average – will it keep climbing?
150y inflation average = 2.5%

10. PRESSURE: US Inflation in 2018
sources: HiddenLevers, Bureau of Labor Statistics
CPI Category Share of CPI YoY % Change
Energy 8% 7.9
Transportation Services 6% 4.1
Housing 33% 3.4
Medical Care 7% 2.2
Food 13% 1.4
Commodities (not food/energy) 20% -0.4

11. PRESSURES: Energy
sources: HiddenLevers
sweet spot for
Oil
Iran Sanctions
Likely short-lived due to
US export capacity
May lead to US control
of China + India Oil
Supply
+$8 +12 usd – why? +$7

12. PRESSURES: Other Commodities
sources: HiddenLevers 1, HL 2, HL 3
Commodity 1y Trend % 2y Trend %
Copper +21.3 +44.6
Aluminum +16.8 +45.2
Gold +2.7 +2.2
Silver -5.3 -4.8
Agriculture +2.3 -13.8

13. PRESSURES: Global Inflation in 2018
sources: CIA World Factbook
Some OECD countries below 2% Inflation
40% inflation in Turkey
Runaway inflation in Venezuela

14. HiddenLevers
SYMMETRIC INFLATION

15. SYMMETRIC: Labor Force Participation
sources: HiddenLevers, Federal Reserve Bank
Post-Recession
Low Point
Unemployment at 18-year low
Labor Force Participation Rising
Continuing Wage Growth

16. SYMMETRIC: Why Let Economy Run Hot?
sources: HiddenLevers
A deviation of inflation to the upside will not necessarily elicit a
policy response, especially in light of the PROLONGED period of
BELOW-TARGET INFLATION.

17. Overwhelms Fed
Commodities Inflation
Wage Inflation
Yield Curve Inversion
1987 Crash Repeat
SYMMETRIC: Impact of Fed Action
sources: SF Federal Reserve, HiddenLevers
Raise Fed
Funds Rate
Inflation-Fighting Toolkit
Shrink QE Era
Balance
Sheet
Increase Bank
Reserve
Requirements
Raise IOER:
interest on
excess reserves
Risks of being early
Risks of being late
New Fed Hawks
Rising Rates
Inflation
April Core PCE Up 1.8%

18. HiddenLevers
SCENARIOS: INFLATION
OIL PRICES
UPDATE
NEW
Nah, 2% tops

19. BASELINE
GOOD
SCENARIO: Inflation
S&P 500
-20%
US CPI
4%
S&P 500
+10
US CPI
2.0%
S&P 500
+5%
US CPI
2.5%Symmetric
Inflation
BAD
Outpaces
Fed Moves
US GDP
1.0%
US GDP
3.5%
US GDP
3.0%
Pricing Pressures
Ease

20. BASELINE
GOOD
SCENARIO: Oil Prices
S&P 500
-9%
Oil Prices
90
S&P 500
+15%
Oil Prices
50
S&P 500
+3%
Oil Prices
70
Sweet Spot
for Growth
BAD
Iran Sanctions
Reinstated
BLIP LIKE
CURRENT
VENEZUELA
DROP
US BECOMES
SUPPLIER TO
CHINA / INDIA
PRODUCERS
AND
CONSUMERS
HAPPY
US #1 Producer

21. Sweating Inflation? – Let’s take a Look
See it on HiddenLevers

22. Fed is letting economy run hot
because it ran so cold
Sweating Inflation? – Take-aways
CPI rise
driven by
energy
Use annual inflation
numbers from HL or BLS,
not media monthlies.
Baseline Oil + Inflation Scenarios in
motion