The Ugly Truth About Deflation (G.Ure) The was this is done is my putting out stories about (and this is real, out of the UK this morning): how Inflation has hit a 12-year low. We need to sit back and contemplate stories like this one deeply: This is a huge raindrop from our previous thought experiment, but it missed our circle on the paper. Moreover, is it really inflation hitting a low, or could it possibly be that deflation is picking up? The public has been conditioned, since about 1955, or so, to believe that prices only go one way…UP. But in fact the evidence is piling up to the contrary, which is why the Consumer Price report will be so interesting. When gasoline for the family car drops a buck a gallon, that is NOT low inflation, that it outright price deflation. What we are seeing now (and it takes only a moment of thought to come into focus): Things we can live without but which are in huge supply are in deflation. Things we need, like food, are going up, although quite slowly. What this means is that we are in sectorial deflation and oil’s in the middle of that. The reason that food prices aren’t coming down (and why farmers are only going to make $5 profit per acre in 2015, is that seed companies haven’t reduced their prices. So the food and seed companies will have pricing power. Housing lost its pricing power 5-years ago, in case you have forgotten, but in Elliott wave terms, we should have another large downside correction ahead, and that ought to happen in the next three years. Meantime, the Baltic Dry Index dropped another 7 points this morning to 838.
Posted on: Tue, 16 Dec 2014 15:11:52 +0000