Inflation proponents are coming out of the woodwork. Here are some examples.
Inflation is Building
DiMartino: Inflation Is Building And The Fed Will React. “Former Fed insider Danielle DiMartino knows the Fed will be out of bullets at the next recession. Even so, its Chairman Jay Powell is now desperately trying to create as much runway as possible.”
Inflation is Back, Say a Prayer
Inflation is back: 25% of firms reported to the NFIB that they plan to raise prices, a ten-year high…say a prayer for Jay Powell
— David Rosenberg (@EconguyRosie) April 10, 2018
50-50 Odds Core Inflation Hits Three Percent
The core CPI was as expected at +0.2%, but the YoY trend did jump to 2.1% from 1.8% in Feb. There is going to be a price to be paid for last year’s string of wireless-induced 0.1% prints which are falling out of the YoY math. I see 50-50 odds of 3% core inflation by year-end.
— David Rosenberg (@EconguyRosie) April 11, 2018
Put the Stag in Inflation
Something has to put the “stag” into stagflation. Your point drives at quandary posed to firms forced to pass along price increases or risk their profits being consumed by higher input costs.
— Danielle DiMartino Booth (@DiMartinoBooth) April 11, 2018
Inflation Rising Daily
ICYMI: Inflation —> Read More: https://t.co/AO97gxLUfK pic.twitter.com/To26DlTcPH
— Peter Boockvar (@pboockvar) April 11, 2018
Sober Outlook
Chart (@NYFedResearch): The UIG US inflation indicator – pic.twitter.com/TDjXfXDr52
— (((The Daily Shot))) (@SoberLook) April 11, 2018
This is Happening
This is happening. https://t.co/CBRMDoNGhR
— Ben Hunt (@EpsilonTheory) April 12, 2018
Bloomberg Take
It’s important to see where inflation is picking up: rents are getting pricier, as are healthcare, cell-phone service & car insurance. Arguably these are all non-discretionary expenses, reducing consumer purchasing power unless wages increase more. https://t.co/5kN1fMs7Cs
— Lisa Abramowicz (@lisaabramowicz1) April 11, 2018
Epsilon awaits a Match
What the Narrative Machine tells us about inflation. The common knowledge bonfire is all set. Now we’re just waiting on the match. New from ET … https://t.co/7uGAWeK8AC
— Ben Hunt (@EpsilonTheory) April 10, 2018
In his post, on Epsilon Theory, Ben Hunt offered this chart.
I’ve color-coded the article nodes by date (bluer = older, redder = more recent) to show this time-lapse effect in a single snapshot of the network. Because this is a “gravity model”, it’s meaningful that the more centrally located articles within the superstructure tend to be redder or more recent articles. Also meaningfully, the clusters themselves show this effect. Look at the blow-up of the network below, and you can see how the more recent (redder) articles in the “markets” cluster are more centrally positioned than the older (bluer) articles in the same cluster. What all this means is that the inflation narrative is becoming not only stronger (more articles, new clusters) but also — and I really can’t emphasize this point enough — the inflation narrative is becoming more coherent and “gravitationally stable” over time.The growing strength and coherence of these Narrative Machine visualizations show the creation of powerful common knowledge around inflation, where everyone knows that everyone knows that inflation is rearing its very ugly head.
What Everyone Knows
For starters, if it is that complex, it’s likely too complex.
More importantly, I am quite amused by the irony of the above paragraph, specifically the “powerful common knowledge around inflation, where everyone knows that everyone knows that inflation is rearing its very ugly head.”
Wow.
I propose, what everyone “knows” is useless, most often because it is wrong!
I do not rule out an inflation scare, just as we had in 2008 when crude spiked to $140.
In fact, the above Tweets and articles show it’s clear we are in the midst of such a scare right now.
One Question
I have a simple question.
When is the last time such overwhelming consensus on a fundamental economic issue ever been right?
One Person Gets It!
I have to repeat this bit of well-stated philosophy.
“#Stagdeflation Defined: The Fed inflates the living sh$t out of assets and investors/speculators delude themselves into thinking that it’s organic inflation.“
I do not know, nor care, how high the price of crude gets. But I do know this: Asset bubble and credit bubble busts are not inflationary.
Rear-View Mirror Thinking
Inflation is mostly in the Rear-View Mirror.
Those looking for a huge inflation boost fail to understand credit dynamics.
Austrians who only look at money supply keep expecting pent-up inflation. The Monetarists at the Fed (central banks in general), are clueless about the situation they fueled.
Deflationary Debt Trap Setup
When credit expands there is inflation. When credit contracts (think defaults, bankruptcies, mortgage walk-away events), debt deflation occurs.
My Definitions
Inflation: An increase in money supply and credit, with credit marked to market.
Deflation: A decrease in money supply and credit, with credit marked to market.
You can nitpick with those definitions all you want, but that is how the real world operates.
If banks become capital impaired or defaults rise enough, the banks stop lending. All it takes to kick things off is a significant decline in asset prices.
Perhaps we get consumer inflation for another quarter or two, but inflation is mostly in the rear view mirror, primarily having impacted asset prices, not consumer prices.
Rising interest rates are already starting to impact the housing market. The auto market, home supply markets, and consumer credit in general got a temporary housing boost.
What’s next won’t be pretty, and almost no one sees it coming. They can’t. Inflation is in the rear-view mirror.
What most economists and economic writers expect to happen, already has happened. They don’t see it because they do not understand what inflation really is.
Mike “Mish” Shedlock
Yes, that sounds right to me, cap’n, but I wonder if change in velocity doesn’t affect readings.
My compass shows a spinning needle with no slowing down.
Inflation arrived years ago, but only now is being admitted. What do you think gave us this stock market? Car prices? Bubbles everywhere….
“Inflation: An increase in money supply and credit, with credit marked to market.
Deflation: A decrease in money supply and credit, with credit marked to market.” This is close but still wrong. To make it right, add “relative to production” to the end of each of the statements and you will be correct.
Inflation is:
•an increase in the money supply relative to production (more money chasing same goods)
OR
•a decrease in production relative to the money supply (same money chasing less goods)
and Deflation is:
• a decrease in the money supply relative to production (less money chasing same goods)
OR
•an increase in production relative to the money supply. (same money chasing more goods)
Prof Steve Keen is very much in the deflation camp as credit bubbles pop in China, Australia, Canada, Sweden, South Korea. Considering he got it right in 2006 he is always worth reading.link to amazon.co.uk
Also, just read a comment that global debt is some 237 trillion now.
I read that small, subprime auto lenders, are going bankrupt. There is a Bernanke quote somewhere about something being confined to subprime. “Inflation is back”. Well, someone has been asleep for years. The UIG chart above shows inflation returned by 2010.
Either that, or a Rohrschach test.
Expect the UK to take the lead on the next deflationary spiral:
link to s3-us-west-2.amazonaws.com
In 2008 it took $140/bbl oil and a 5.25% Fed Funds rate to deal the economy a knockout blow. It will take much less this time.
I agree with Mish. This is typical “late cycle” price behavior, along with typical “late, late” cycle Fed reaction.
You sure Epsilon Theory isn’t Jackson Pollock masterpiece?
The colloquial use of the term inflation refers specifically to price inflation. Introducing the (obscure to most) Austrian definition of inflation only serves to confuse the conversation. They could triple the money supply but, so long as prices remained the same, no one would call it inflation.
What we’ve had so far is mainly ‘asset inflation’ via monetary pumping along with inflation in other discrete places e.g. rent, healthcare and education. However, inflation from the aforementioned has a tendency to ‘leak’ into the mainstream over time, only very subtly to begin with. The debt (and a default cycle) threatens an asset deflation, for sure, however, as Kidhorn suggests (above) a source of future inflation comes from “a drop in production” i.e. a banking crisis in China could ultimately lead to a material reduction in capacity in a variety of areas that could put a very firm floor under prices all of a sudden, especially in areas that have been dogged by egregious over-capacity. In addition, low rates tend to direct investment toward the higher end of the capital structure at the expense of production toward the lower end of the cap structure. Products in this segment are also vulnerable to sudden price spikes owing to a lack of investment over the longer term.
In order to have inflation you need either a drop in production, an increase in demand or both. I don’t see any of these things happening for manufactured products. Maybe via tariffs, but that would be a one off. You may see inflation for things that can’t be manufactured like real estate, services, etc… .