The Quiet Market Risk This Week’s Inflation Data Doesn’t Show VIEW IN BROWSER If you ask an economist what keeps them up at night, most of them will give you the same answer. It isn’t an asset bubble like the dot-com era. It isn’t a recession. And it isn’t inflation. It’s deflation. When prices start falling, the damage doesn’t happen overnight. It creeps in quietly. Spending slows, debts grow heavier, economic momentum fades... The result is a general economic malaise that can be devastating for investors. In Japan, deflation persisted for years. It followed a massive asset boom, then settled in slowly. Prices drifted lower, growth stalled, then stocks went sideways. What followed wasn’t a crash. It was a lost decade. Then another. That’s why deflation is so dangerous for investors. It doesn’t force decisions. It encourages waiting. It creates stagnation. Markets like that can quietly cost you years. We don’t want that here, folks. And that’s why this week’s inflation numbers matter more than most investors realize. Because the fact is, I’m already seeing early signs of deflation. Household prices are shrinking, crude oil prices are low and the global population is shrinking, especially in Asia and parts of Europe. But the trouble is, the Federal Reserve is still worried about inflation. So, this week’s inflation reports should provide a clearer picture of whether the Fed’s concerns are justified – or if those deflationary signs are getting louder. In today’s Market 360, I’ll dive into the details of the inflation reports, explain the signs of deflation I’m seeing and what the Fed needs to do about it. Then, to wrap things up, I’ll tell you about why you need to be on guard for sudden market shifts, and how to prepare for the next one I see coming. | Recommended Link | | | | Insiders in Washington have already bought massive stakes in three tiny resource firms, driving them up as much as 200% overnight. Now, the man who recommended MP Materials before the White House bought (making 100% for his followers) is naming the next stocks he believes the government will target. Get the names and tickers right here – free of charge. |  | | Consumer Price Index Let’s start off with the Consumer Price Index (CPI) report, released on Tuesday. In November, headline CPI rose 0.3% from the prior month and 2.7% year over year. Both numbers came in right in line with economists’ expectations. Core CPI, which strips out food and energy costs, rose 0.2% over the previous month and 2.6% year over year. Both numbers were 0.1% below expectations. Digging deeper into the report, food costs rose 0.7% and utility costs went up 6.17% over the previous 12 months. The biggest contributor to the increase overall, however, was shelter costs. Shelter was up 0.4% in November, while owners’ equivalent rent (OER) was up 0.3%. This is important because shelter accounts for more than one-third of the CPI weighting, and it was up 3.2% on an annual basis. This was surprising to me, because this data has been sticky for a while – even though we have plenty of other data suggesting housing prices are falling. But more on that in a minute… Some areas of the report did show signs of deflation, though. Used vehicle prices declined 1.1%, while new vehicle prices were flat – and the communication index fell 1.9%. Producer Price Index Next, we have the Producer Price Index (PPI), which came out on Wednesday morning. While CPI shows what consumers are paying, PPI tells us what businesses are charging one another. In many cases, it’s an early warning signal for where consumer prices are headed next. It’s also important to note that due to the government shutdown, this report had delayed data for October as well as the current data for November. For October, wholesale prices rose 0.1%. In November, prices rose 0.2%. On a year-over-year basis, producer prices are up roughly 3%. November’s headline PPI was slightly below expectations for a 0.3% increase. On a year-over-year basis, producer prices were up 2.7%. Core PPI – which strips out food, energy and trade services – was flat in November after a sharper increase in October. That pushed the year-over-year core figure higher to 3.5%, but only because it’s still capturing stronger price gains from earlier in the year. Now, this is where investors need to be careful. The monthly data tells a different story than the annual headlines. Price increases at the producer level are flattening, not accelerating. Businesses are finding it harder to push through higher prices, even as some costs remain elevated. In other words, the backward-looking numbers look hotter than the current trend. Adding to the confusion is the quality of the data itself. This PPI report was compiled during a prolonged government shutdown, meaning some price data could not be fully collected. In other words, this was a report full of noisy data, folks. The Deflation Signs… And What the Fed Needs to Do About Them Deflation rarely announces itself in a single data point. It shows up in patterns. In fact, I’m already seeing three signs of deflation. First, there’s housing. Remember when I said the OER number surprised me? Well, I’ve looked at home sales surveys, and prices have been declining for the past six months, not rising. So, it’s frustrating that OER went up even though data shows prices are falling, making this a loud deflationary signal. The second sign is energy. Crude oil prices are lower, due in large part to President Trump’s “drill baby drill” energy policies. The decisive action in Venezuela, combined with possible resolution to conflicts in other global hotspots, could ensure U.S. energy prices remain low for decades. Stranger things have happened, and it needs to factor into the Fed’s thinking. Finally, there’s demographics. The reality is we are importing deflation from China. Their industrial policy, combined with shrinking households, means that China has a big problem on its hands. In fact, all of Asia’s population is shrinking, along with parts of Europe. Fewer workers and fewer consumers mean less natural demand growth over time. That’s a powerful deflationary force that doesn’t reverse quickly. Taken individually, none of these guarantees deflation. Taken together, they suggest inflation pressure is fading – and stagnation risk is rising. How to Prepare for the Next Market Shift So, what does the Federal Reserve need to do? It needs to keep cutting rates – potentially several more times this year – before deflationary pressures become entrenched. History shows why this matters. In Japan, once the asset bubble burst, the market didn’t collapse overnight. It stalled. Growth disappeared. Stocks went sideways for years. Investors waited for a recovery that never really came. That’s how lost decades are created. And I’m starting to see echoes of that same setup today. Not a sudden crash – but a slow-moving shift that leaves investors stuck in stagnant markets, relying on big, familiar names that quietly stop delivering real growth. That’s why I recently hosted a special briefing called Hidden Crash 2026. In it, I explain why the next market risk isn’t panic or volatility – it’s stagnation. And why investors who stay anchored to the biggest, most widely owned stocks could find themselves waiting years for meaningful gains. But here’s the good news. When shifts like this happen, growth doesn’t just disappear. A small group of stocks continues to do the heavy lifting, preparing the way for the next phase. I call these companies Edge Innovators. These are the companies driving real earnings growth, real innovation and real returns, even when the broader market goes nowhere. These are the stocks that can help you stay ahead of a slow-moving market shift instead of getting trapped by it. Click here to watch now and learn how you can position yourself for this next phase of the market. Sincerely, | .png)
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