The Long-Term Prosperity Wave v.2

I offered the following chart last year and I think it is time for an update.

April 8, 2010
The Long-Term Prosperity Wave


Click to enlarge.

It shows the Consumer Price Index: All Items divided by the Producer Price Index: All Commodities.

I felt that a generally rising ratio was a sign of prosperity and a generally falling ratio was a sign of something darker.

Here's an update that shows the data since 2000.


Click to enlarge.

I'm showing the overall trend down in red. I'm also showing the trends between recessions in orange (using just my eyeball as a guide). This is not the behavior we saw in the 1980s and 1990s. I would argue that what we have now is an illusion of prosperity.

This is a visual representation of what I mean when I say that I am not a believer in commodity driven stock markets. There is pricing pressure at the producer level but there is little ability to absorb that pressure at the consumer level. That's bad. Should it continue then I would expect to see a repeat of what we saw in 2008 at some point.

See Also:
Trend Line Disclaimer

Source Data:
St. Louis Fed: PPI: All Commodities
St. Louis Fed: CPI: All Items