Guest Post by David Stockman & Stealthflation
The Deflation Calamity Howlers Are Dead Wrong—-In Europe And Everywhere Else
The calamity howlers of deflation are out in force this morning owing to an absolute economic non sequitur. Namely, that year-on-year consumer prices in the EU came in at negative 0.2% in December, implying that ECB printing presses need to go into immediate overdrive.
Well, of course the CPI has momentarily weakened. Crude oil has experienced a monumental plunge of more than 50% since mid-2014. That has temporarily dragged down the euro zone’s reported CPI and the math isn’t all that complex. During the last 12 months, euro zone energy prices have fallen by 6.3%, and everything else is still 0.6% higher than a year ago.
So what’s the emergency? This is the very same CPI blip that occurred when oil collapsed in the second half of 2008. As is evident below, that episode did not generate some cascading plunge into economic darkness. In fact, the Eurozone CPI was back running above 2.5% in no time.
The truth of the matter is that the EU-19 is in clover because it’s consumers get a big break; and, on the other side of the economic equation, it produces almost no oil. Europe’s production is mainly in the UK and Norway and they have their own currencies. Accordingly, the ECB should be putting its printing presses on an extended sabbatical and declaring victory on the achievement of its “price stability” objective.
Continue reading Deflation Calamity Howlers Are Dead Wrong
Guest Post by Michael Ashton
Today’s column is a brief one, as I need to post a correction. Not a correction to my stuff, mind you, but to others.
Pictures like the below have been circulating now for a couple of weeks. This is a chart of the 2-year inflation “breakeven” on Bloomberg, illustrating how a “deflation warning” is sounding as they go negative.
Continue reading Call Off the Deflation Warning
- Fill’er Up –Market Anthropology [biiwii comment: a few days late but interesting viewpoint on the post-2011 disinflationary phase]
- 5 Themes for 2015 –SeekingAlpha [biiwii comment: this SA post disputes MA’s view; what makes a market and all…]
 December ISM just out, details here –NFTRH.com
and… What Happens After a Big Down Day Between Christmas & New Years –QuantEdges
One little anecdote from within the vast US economy…
I received this note from my trash and recyclables collector this morning:
“The reason for this raise being larger than normal for us is primarily due to unforeseen increases in our costs, including this past September receiving the largest increase in over 5 years to both our single stream processing fees and trash disposal fees.”
So despite the gas price cost savings in this fuel intensive business, other costs have have come out of left field from elsewhere in the economic food chain.
I wonder how my old industry (manufacturing) is faring in this regard. Even as I left the industry the definitions of what was considered toxic waste had been historically strict, regulations were as tight as a drum and the related costs were significant. I wonder if this is a progressive situation.
I have been out for 2.5 years now. Maybe it is time to check in and start asking questions.
While inflation has been going on non-stop for years, situations like the above, where wage and cost pressures start to bubble up are what most people (including conventional economists) consider to be inflation.
 this link from BLS was kindly sent by a reader: US city average, water and sewer trash collection services.
Guest Post by EWI
Jaguar Inflation – A Layman’s Explanation of Government Intervention
I am tired of hearing people insist that the Fed can expand credit all it wants. Sometimes an analogy clarifies a subject, so let’s try one.
It may sound crazy, but suppose the government were to decide that the health of the nation depends upon producing Jaguar automobiles and providing them to as many people as possible. To facilitate that goal, it begins operating Jaguar plants all over the country, subsidizing production with tax money. To everyone’s delight, it offers these luxury cars for sale at 50 percent off the old price. People flock to the showrooms and buy. Later, sales slow down, so the government cuts the price in half again. More people rush in and buy.
Continue reading Jaguar Inflation
Guest Post by Michael Ashton
Below is a summary of my post-CPI tweets. You can follow me @inflation_guy :
- 1y inflation swaps and gasoline futures imply a 1-year core inflation rate of 0.83%. Wonder how much of that we will get today.
- Very weak CPI on first blush: headline -0.3%, near expectations, but core 0.07%, pushing y/y core down to 1.71% from 1.81%.
- Ignore the “BIGGEST DROP SINCE DECEMBER 2008″ headlines. That’s only headline CPI, which doesn’t matter. Core still +1.7% and median ~2.3%
- Amazing how core simply refuses to converge with median. Whopping fall in used cars and trucks and apparel – which is dollar related.
- Core services +2.5%, unch; core goods -0.5%, lowest since 2008. But this time, we’re in a recovery.
- Medical Care Commodities, which had been what was dragging down core, back up to 3.1% y/y. So we’re taking turns keeping core below median.
- Core ex-housing declines to +0.800%, a new low.
- That’s a new post-2004 low on core ex-shelter.
- Accel major groups: Food, Med Care (22.5%) Decel: Housing, Apparel, Transp, Recreation, Educ/Comm, Other (77.5%). BUT…
- But in housing, Primary Rents 3.482% from 3.343%, big jump. Owners’ Equiv to 2.707% from 2.723%, but will follow primaries.
- Less-persistent stuff in housing responsible for decline: Lodging away from home, Household insurance, household energy, furnishings.
- Real story today is probably Apparel, which is clearly a dollar story. Y/y goes to -0.4% from +0.6%. Small weight, but outlier.
- Similarly used cars and trucks, -3.1% from -1.7% y/y (new vehicles was unch at 0.6% y/y).
- On the other hand, every part of Medical Care increased. That drag on core is over.
- Curious is that airfares dropped: -3.9% from -2.8%. SHOULD happen due to energy price declines, but in my own shopping I haven’t seen it.
- I don’t see persistence in the drags on core CPI. There’s a rotation in tail-event drags, which is why median is still well above 2%.
- We continue to focus on median as a better and more stable measure of inflation.
- Back of the envelope calc for median CPI is +0.23% m/m, increasing y/y to 2.34%. Let’s see how close I get. Number around noon. [Ed. note: figure actually came in around 0.15%, 2.25% y/y. Not sure where I am going wrong methodologically but the general point remains: Median continues to run hotter than core, and around 2.3%.]
Continue reading Post-CPI Tweets
A good report that departs from some of the nuts and bolts (so much so that I forgot to include the usual currency segment, which we have frankly had nailed since the commodity currencies broke down a year ago and the great USD rally was just a twinkle in Uncle Buck’s eye ), managing what was an expected early December drop in markets with an eye out toward Tax Loss, Santa and January Effect seasonals.
But to me the most important aspects of #321 are its clear views about why nothing about this macro environment is healthy, how the market is vulnerable and how 6 years later we are simply closing out a massively significant market event, with the majority at the opposite end of the emotional spectrum to Q4, 2008.
On that note, at the prodding of a subscriber, I’ve excerpted a segment from NFTRH 7 (Nov. 8, 2008) on Deflation and Inflation. To me it shows how little things have changed in the ensuing 6 years. Amazing, really. I’ll probably post it here later, to go with Friday’s post about a potential ‘inflation trade’ bounce, possibly in early 2015.