Inflation is starting to heat up.

That’s what the most recent Consumer Price Index (CPI) for June revealed.

CPI rose by 2.7% compared to last year. That’s up from May’s pace of 2.4%. Part of the reason is that tariffs are starting to bite.

Categories that are sensitive to early rounds of tariffs are seeing big price increases. That includes household furnishings, which rose the most since 2022.

But the move higher with inflation wasn’t without warning… and it could get much worse.

Let’s check in on a key chart that I warned you about last month – and I’ll share the next clue to watch on the inflation outlook…

Copper’s Breakout

Historically, commodities outperform during periods of rising inflation. They easily top any other asset class when price levels are rising.

That’s why you should keep a close eye on various commodity charts.

Much has already been made about gold, which is a popular inflation hedge. Gold prices rose to record highs in early 2024 and are up more than 60% since then.

But I recently put the spotlight on another commodity that deserves attention. And that’s copper prices.

I had this to say about copper at the end of June:

Copper also has one of the highest correlations to long-term inflation expectations. And the current chart setup in copper looks rather ominous for inflation.

Copper is forming a pattern called an “ascending triangle.” That happens when the price makes higher lows while encountering price resistance at the same level.

The lower dashed line shows the higher lows taking place. The upper dashed line shows where copper is finding resistance around the $5 per pound level.

This tends to be a bullish chart pattern. We can expect prices to break out as the pullbacks keep getting smaller.

But a breakout in copper would be anything but bullish for the stock market.

Rising copper prices signal more inflation ahead…regardless of what happens with tariffs. That could keep the Fed on hold and force the central bank to maintain interest rates at high levels for longer than it wants.

And right on cue, copper prices are blasting higher. Here’s the chart:

Copper prices are surging out of the ascending triangle pattern that I described above. Take a look at the dashed lines in the chart.

The breakout has sent copper prices to record highs. That’s a significant signal on the inflation front.

And that means we should now turn our attention to the next inflation domino to fall… which will confirm higher price levels lie ahead.

Tune in to Trading With Larry Live Each week, Market Wizard Larry Benedict goes live to share his thoughts on what’s impacting the markets. Whether you’re a novice or expert trader, you won’t want to miss Larry’s insights and analysis. Even better, it’s free to watch. Simply visit us on YouTube at 8:30 a.m. ET, Monday through Thursday, to catch the latest.

Expected Inflation

Copper has one of the highest correlations to long-term inflation expectations.

But that’s not the only signal worth watching. There’s another important chart to watch called the 10-Year Breakeven Inflation Rate. It’s a mouthful to say but a pretty straightforward indicator.

The breakeven inflation rate compares the difference between the yield on 10-year Treasury bonds and 10-year Treasury Inflation-Protected Securities (TIPS). TIPS see their value adjusted based on inflation.

The difference between the two shows where fixed-income traders think inflation will land over the next 10 years.

Here’s the chart of the 10-year breakeven inflation rate going back to 2020:

You should note a couple of things about the chart. We can see that the breakeven rate peaked in 2022 (arrow). That happened about two months before the peak in CPI back then.

As CPI has generally fallen over the past couple of years, the breakeven rate has settled into a range between 2.0% and 2.5%.

But with copper prices on the move, I would watch for breakeven rates to rise over 2.5% (dashed line).

Copper prices are delivering a warning on the inflation outlook. Now we’re waiting for our next indicator to start flashing.

Rising breakeven rates would strengthen the evidence that another inflation wave is coming for the economy…

Happy Trading,

Larry Benedict
Editor, Trading With Larry Benedict

P.S. If you haven’t yet checked out my quick briefing on a vital opportunity that’s been “hidden in plain sight,” be sure to do so soon.

Forex is one of the largest markets in the world… yet many people ignore it or assume it’s too complex for them to tackle. That’s a shame, though, as currency trading is one of the best ways to take advantage of the current environment.

I’ve traded more than $500 billion worth of currencies in my career (in all earnestness, it’s probably over a trillion by now), and I don’t want my readers to miss out on the profits available. Currencies are an incredibly exciting space for traders right now.

To learn more about this opportunity… and how you can start taking advantage… be sure to go here before your special offer goes offline.

Free Trading Resources Have you checked out Larry’s free trading resources on his website? It contains a full trading glossary to help kickstart your trading career – at zero cost to you. Just click here to check it out.