A Clear Balance Of Global Inflation Factors

Back at the end of May, Germany’s statistical accounting agency (deStatis) added another one to the inflationary inferno raging across the mainstream media. According to its flash calculations, German consumer prices last month had increased by the fastest rate in 13 years. Even using the European “harmonized” methodology (Harmonized Index of Consumer Prices, or HICP), inflation had reached 2.4% year-over-year which was the highest since 2012.

These numbers, of course, pale in comparison to their American counterparts (most recently the PCE Deflator). That’s a big part of the problem. Despite big numbers in Europe, they are nowhere near as big as the US. Put another way: inflation figures which had been more harmonized than not for decades all of a sudden they are acting a bit too idiosyncratic for once.

That’s actually a red flag warning against inflation.

The German inflation estimates, like those for Europe overall, while higher than recent years haven’t actually been that much higher – just a tenth of a percent for Germany’s HICP. And now, according to flash June 2021 estimates, consumer prices may have cooled off a touch already. The annual change fell back to 2.1%, a “disappointing” (to the inflation narrative) 0.3% deceleration that wasn’t supposed to happen.

Because inflation is supposed to be a global phenomenon – it certainly has been for a very long time in consistently undershooting – these twists and turns while not unexpected to more honest observers they do confirm some hidden or even missing components that continue to undermine the inflation case.

It’s these global factors that account for several key developments, most especially how Germany’s bund market didn’t seem to notice the “highest in almost a decade” HICP report.

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Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

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