Core Insights - The article highlights a contrasting narrative between mainstream market optimism regarding inflation and the warnings from commodity traders about potential inflationary pressures ahead [1][2][3] Commodity Market Insights - Commodity markets are seen as a closer indicator of inflation, with rising raw material prices typically signaling broader price increases [2] - Historical data suggests that metal prices lead global Consumer Price Index (CPI) by approximately 6-9 months, indicating that current increases in metal prices may foreshadow rising inflation [2][3] Inflation Leading Indicators - Multiple inflation leading indicators are showing strong signals of impending price pressure, with a composite indicator based on manufacturing, monetary, and commodity data remaining above 2% and accelerating [3] - Rising freight and fertilizer prices are also noted as indicators that precede increases in food CPI [3] Market Sentiment - There is a notable overconfidence in the stock and bond markets, with significant inflows into major U.S. stock and bond ETFs, showing no signs of decline [4] - Current inflows into stocks and bonds do not reflect expectations of a scenario similar to the inflationary period of the 1970s, where commodities provided significant positive real returns [5]

Core Viewpoint - The report emphasizes that "quantity" is more important than "price" this year, focusing on the impact of inflation risks on the U.S. economy and its implications for exports and employment [2][11]. Group 1: Impact of Inflation on U.S. Economy - Inflation may erode the real income and consumption capacity of U.S. consumers, particularly among low- and middle-income groups, negatively affecting their purchasing power and increasing wealth disparity [3][12]. - A significant rise in inflation could suppress risk appetite, leading to a decline in U.S. stock markets, which would adversely affect the wealth effect for high-income groups and consequently impact service consumption [3][18]. - Rising inflation, combined with tax cuts, may raise concerns about the sustainability of U.S. public debt, potentially keeping long-term U.S. Treasury yields high and constraining fiscal expansion [4][26][27]. - If inflation rises significantly, it could limit the Federal Reserve's ability to cut interest rates, reducing the effectiveness of monetary policy in countering potential economic and employment downturns [4][32]. Group 2: Observing Short-term Inflation Risks - Various dimensions indicate short-term inflationary pressures, particularly in price expectations and surveys, while actual prices and economic indicators suggest a more stable inflation trajectory [5][35]. - Consumer inflation expectations tend to synchronize with U.S. CPI year-on-year changes but may lead actual inflation trends by 1-2 quarters during significant inflationary periods [5][36]. - Price surveys from businesses generally lead U.S. CPI changes by 2-5 months, indicating potential inflation trends [5][37]. - Financial market indicators, such as implied inflation rates from U.S. Treasury bonds, also lead CPI changes by about 2 months [5][46]. Group 3: Constructing a Leading Index for U.S. Inflation - A comprehensive leading index for U.S. inflation has been constructed using various dimensions, showing a correlation with U.S. CPI changes, leading by approximately 2 months [8][61]. - The leading index indicates that inflationary pressures are primarily driven by cost factors, with other dimensions showing limited upward pressure [8][68]. - The recent rise in the comprehensive leading index suggests a potential increase in U.S. CPI, with predictions indicating a possible rise to around 3.2% in July [8][69].