population

Inflation Monitor – May 2016

Inflation Monitor Summary – Composite Ranking

Inflation Monitor - May 2016 Summary

 

* The Inflation Equilibrium is a quick summary for the whole data series of the inflation monitor. If you don’t like statistics, this is the chart for you.


 

Inflation Monitor – May 2016 – Introduction

 

This month I want to discuss population growth. This is one of those topics which when you see the word, you probably instantly fell asleep. sorry…

However, this topic is important because it is one of the factors determining inflation. In the US as in many of the developed economies, population is not growing as fast as it needs to in order to sustain the current rate of growth. Currently the US has a population growth rate at below 1% ( 0.77%). Countries like Japan, Russia, China, and eastern Europe have shrinking populations.

Slow to negative population growth economies have a significant deflationary force to overcome. This deflationary force cannot be simply determined by looking at population growth, since it also depends on the age distribution of the workforce and other factors, but it does give you a general sense of which countries have some serious headwinds to overcome if they want growth via inflation.

Read More…

Inflation Monitor – May 2016 Read More »

Inflation Monitor – March 2016


Inflation Monitor Summary – Composite Ranking

Inflation Monitor - March 2016 Summary

 

* The Inflation Equilibrium is a quick summary for the whole data series of the inflation monitor. If you don’t like statistics, this is the chart for you.


 

Inflation Monitor – March 2016 – Introduction

 

The first quarter of 2016 has been an interesting one. It started off with a significant bout of volatility and risk-off investing. Then after the stock market bottomed in mid-January and re-tested those levels a few weeks later, it has taken off like a rocket. It was almost as if the global economic troubles didn’t exist anymore. Unfortunately they do… It was almost as if someone (the Fed) waved their magic wand and all the problems of the world just disappeared.

Magic is a wonderful thing. Easter is coming soon. Kids are eagerly awaiting the day where they get chocolate eggs and toys from the magical bunny. What a wonderful thing to believe in magic and illusion.

While many of you don’t believe in the Easter bunny, you probably believe in magic. Earlier this year the markets swooned based on poor economic data, then the Fed told a magical story of how they are data dependent (but only when they want to be) and lowered rate hike expectations and without further consideration the market believed it and started to rise.

Spoiler Alert for those of you who still believe in the Easter bunny, he isn’t real, and neither is this stock market rally.

Sure the prices confirm that stocks and commodity prices have been rising in the past few weeks, but what has really changed? Have US or global economic conditions improved? The only thing that has changed significantly in the past 3 months has been the stock market. So does the Fed’s data dependency include stock prices? Maybe I missed that Fed meeting where they discussed how stock prices determined monetary policy.<end sarcasm>

The Fed’s stated target of four interest rate hikes in 2016 communicated to the public that US economic conditions were strong enough to attempt to return to historically normal rates… At least those were the expectations communicated by the Fed.

At the last Fed meeting, Fed Chairwoman and magician Janet Yellen indicated that the number of rate hikes may be closer to only two. Like magic, the markets rose to greet the new bullish expectations. Apparently four rate hikes was too much and two was just the right amount. The Fed has a notoriously poor track record of predicting the future of interest rates and inflation, but in this case there may be another motive.

The Fed has another magic trick in their act other than changing the fed funds rate and printing money. With a few carefully placed words they can change the direction of the stock market. All market participants want to know what the Fed says. They hang of every word uttered by Fed board members. Yet what the Fed actually does is very little. One meeting they predict 4 rate hikes and the next they reduce it to 2. They have not changed any of the underlying conditions, but like magic, they have made everything all right again in the markets.

This is one of the Fed’s greatest tricks…

Read More…

Inflation Monitor – March 2016 Read More »

Why You Should Worry About Japan Deflation?

 

Is the U.S. becoming Japan?

Japan has long been known as an example of what can happen when you allow deflation to happen in an economy which is highly reliant on persistent inflation to sustain itself. What is happening in Japan is one of the reasons that the Federal Reserve is trying so hard to avoid deflation in the US.

Japan is in a challenging economic situation. This is mainly due to their demographics. They have an aging population, where the amount of elderly people is quite a bit larger than the younger generations. Anecdotally, in 2011 sales of adult diapers exceeded the amount for baby diapers.10. The chart below shows the demographics of Japan during 3 periods of time with approximately 50 years in between. A shrinking population can become a problem in an economy because it is a strong deflationary force. Japan has an aging population which will only continue to shrink over the next few decades. While other developed nations have stagnant or slow growing populations, this is not ideal for an expanding economy.

japan deflation

Read More…

Why You Should Worry About Japan Deflation? Read More »

Scroll to Top