Pricing pressures are hot, primarily at the producer level. Further, after months of below-target inflation readings, mainstream measures of inflation are ticking higher as well, compared to the deflationary lows of the pandemic. Still, we don't think the Federal Reserve is planning to change its approach to low interest rates, and Chairman Powell has said that the central bank is willing to let inflation rise above its 2% target in exchange for a continued decline in unemployment. We track 17 inflation measures on a monthly basis. On average, they indicate that prices are rising at an 8.2% rate, ahead of last month's 7.9%. But drilling down to core inflation -- which we obtain by averaging Core CPI, core GDP PCE, market-based PCE Ex-Food & Energy, the five-year forward inflation expectation rate, and the 10-year TIPs Break-even Interest Rate -- our reading is 3.0%, with the all-important five-year target rate at 2.1%. The big increases in recent months have come at the producer level, as the PPI for Intermediate Unprocessed goods, for example, is now 54%, and the PPI for Intermediate Processed Goods is 23%. Much of this activity is driven by the recovery in commodity prices, including oil (which has more than tripled year-over year). The Fed's inflation forecasts call for a core inflation reading of 3.4% in 2021 and 2.1% in 2022.

The 10-year Treasury yield, which has been flat to a bit lower since late March, broke lower on Tuesday. Yields fell as low as 1.35% and finished near 1.37%, the lowest since February 23. Yields had run up to the 1.76% level, but have very slowly been dribbling lower to the surprise of many. Aren't we seeing rampant inflation in many areas of the economy? It seems the bond market views most of that as just temporary, driven by supply issues due to the pandemic.

We often talk about breadth, which is a summation of how the individual components of a major index are performing. This includes advance/decline lines, the percentage of stocks in an index above a certain moving average, the percentage of stocks in an index that are making new 52-week highs or lows, and the percentages of index stocks that are on point-and-figure (P&F) buy signals (known as the Bullish Percent Index, or BPI). Most of these indicators are bullish and have been bullish, which give us confidence that the bull market has room to run. Bearish breadth divergences are common at major intermediate- to long-term market tops -- and right now, we just don't see any.

Pricing pressures are hot, primarily at the producer level. After months of below-target inflation readings, mainstream measures of inflation are starting to tick higher as well. Even so, we don't think the U.S. Federal Reserve is planning to change its approach to low interest rates, and Chairman Powell has even said that the central bank is willing to let inflation rise above its 2% target in exchange for a continued decline in unemployment. We track 14 inflation measures on a monthly basis. On average, they indicate that prices are rising at an 8.4% rate, ahead of last month's reading, which was 6.2%. But drilling down to core inflation (which we obtain by averaging Core CPI, market-based PCE Ex-Food & Energy and the 10-year TIPs Break-even Interest Rate), our reading is 2.1%, only slightly above the Fed's 2.0% target. The big increases in recent months have come at the producer level, as the PPI for Intermediate Unprocessed goods, for example, is now 58% and the PPI for Intermediate Processed Goods is 13%. Much of this price activity is driven by the recent recovery in commodity prices, including oil. Used car prices are also up. The Federal Reserve's inflation forecasts call for a core inflation reading of 2.2% in 2021 and back to 2.0% in 2022.