The Inflation Emotion(s)

And there were no base effects back then, unlike now. If you distill the PPI and China’s Factory Gate estimates into 2-year changes, what you find is substantially lower rates than advertised in the yearly headlines.

But the real comparison, or anti-comparison, is in the CPI. While producers are being hit by supply-driven price factors, China’s weak – yes, very weak – the economy will not support those costs being passed along to consumers. China’s consumer prices remain less than tepid for this reason (these reasons); in May, with the fullest measure of base effects within them, the CPI increased all of 1.3% year-over-year; the core rate just 0.9%.

Like Europe, Chinese consumer prices fully demonstrate these divergences: the first between the rest of the world and what’s going on in the US goods economy alone; the second between supply-driven factors and this underlying, broad-based economic weakness across the majority global economy (US, too, factoring out Uncle Sam’s helicopter) which only means, like 2017 heading into 2018, more of the same trouble ahead.

A supply/price shock showing up inside a truly weak economic climate will not result in actual inflation. That’s what happened to those big inflation numbers in 2008 even though they had closer to real inflation in them (more than just a few months, prices had been building for several years; see: 2-year changes) than the current set.

Not only is this the base case, it is absolutely recognized as such everywhere it truly matters – which, obviously, leaves the entire financial media out of it along with much of the internet. Furthermore, since at least mid-March if not late February, what little change in inflation chances is slowly being drained back down toward zero again as new questions emerge about exactly what’s going on right now.

As I put it earlier today:

With COVID and the pandemic fading further into history, what’s being exposed is today an economy that may have been more damaged and susceptible than has been believed up to this point… But as 2021 emerges into the light of a more likely COVID-free world, we take these first steps looking around at an all-too-familiar landscape. The economy gets knocked down and doesn’t ever want to, or is not able to, get back up again.

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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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