The Inflation Emotion(s)

As I keep pointing out, while inflation is a foregone conclusion in the mainstream media that’s the only place on Planet Earth this is true. Everywhere else, it continues to be quite the opposite. Start with the bond market (and all its most lucid segments) and then go outward into other markets and then the whole of the real economy. The rest of the planet is in no shape for all this nonsense.

Like it or not, even as the world tries to pull itself apart in reverse globalization it remains wedded together for better and for worse (more exclusively the latter since, oh, August 2007). If the US “feels” a bit inflation-y but nowhere else, that’s truly the end of the matter. The US non-inflation inflation will ultimately (and quickly enough) prove, to borrow the Fed’s overworn phrase, transitory.

And in any cases where prices are un-leveled by other factors such as supply problems, all the quicker.

China is perhaps the best current example of nearly all these things simultaneously. In 2019 and early 2020, food prices had truly skyrocketed – even as the rest of the economy went backward taking with it the rest of consumer prices. Food hurts the most, yet it isn’t by itself any signal for real inflation.

In 2021, the Chinese are up against the same pressures as the rest of the world; beginning with commodities being then compounded – in analysis – by base effects skewing perceptions. According to the latest numbers from the Chinese government, producer prices rose 9.0% year-over-year in May, factory gate prices 12.5%, each the highest in more than a decade.

These comparisons have littered the internet under the guise of the same I-told-you-so Victor Davis Hanson was describing in that same month. But – and here’s the thing – nowhere does this biased discourse deal with the fact that the highest since September 2008 might actually mean something drastically different.

After all, the pace of Chinese price changes (as well as those around the rest of the world) back then was even more compelling – and yet, there was no doom at least not of the inflationary variety. While producer and consumer prices accelerated, underneath the global economic situation deteriorated, hardly conducive for the real inflation (sustained).

Though big numbers, transitory. Deflation was the future.

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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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