Yesterday, I commented on “transitory” factors holding down inflation.
Today, the Wall Street Journal reports Global Inflation Hits Lowest Level Since 2009.
The Organization for Economic Cooperation and Development said Thursday that consumer prices across the G-20—the countries that account for most of the world’s economic activity—were 2% higher than a year earlier. The last time inflation was lower was in October 2009, when it stood at 1.7%, as the world started to emerge from the sharp economic downturn that followed the global financial crisis.
The contrast between then and now highlights the mystery facing central bankers in developed economies as they attempt to raise inflation to their targets, which they have persistently undershot in recent years.
According to central bankers, inflation is generated by the gap between the demand for goods and services and the economy’s ability to supply them. As the economy grows and demand strengthens, that output gap should narrow and prices should rise.
Right now, the reverse appears to be happening. Across the G-20, economic growth firmed in the final three months of 2016 and stayed at that faster pace in the first three months of 2017.
Growth figures for the second quarter are incomplete, but those available for the U.S., the eurozone and China don’t point to a slowdown. Indeed, Capital Economics estimates that on an annualized basis, global economic growth picked up to 3.7% in the three months to June from 3.2% in the first quarter.
Central bankers in developed economies are puzzled by the sluggish pace of pay rises, given continuing declines in jobless rates. However, they believe that economic growth will ultimately eliminate the gap between what their economies can produce and what they are now producing, supporting wages and prices.
No Puzzle
Central banks are puzzled because they do not know what inflation is, or how to measure it.
For example, instead of using home prices in the CPI, they now use Owners’ Equivalent Rent.
In general, asset prices do not count. Bubbles in stocks and bonds do not count.
The massive global QE liquidity went somewhere, as money always does. The liquidity did not go where the central bankers wanted. It went into asset bubbles.
Mystery Solved
It’s no mystery why central bankers are mystified: Collectively, they are economically illiterate fools engaged in Keynesian and Monetarist group think.
On deck is another round of destructive asset price deflation, brought about by Central banks who cannot see the obvious.
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Mike “Mish” Shedlock
I wonder how much price actually rises (can rise) when a large % of the world growth is comming from China where labor is centrally controlled…meaning their is no wage growth stimulated by demand thus the inflationary pressure is skewed. In fact, price control by their acquisitions seems more deflationary to me.
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I think it’s more the fact that we live in a highly globalized, labor abundant economy where outsourcing is always a possibility. That depresses wages and, therefore, prices. Compared to the huge growth in money supply since 1990, inflation has remained very low.
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Housing inflation is eating up ever bigger chunk of income. There is the answer to your no inflation puzzle central bankiots.
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The market value of my house hasn’t gone up in 10 years. But the cost of repairs, taxes, insurance, electricity, propane, lawn guy, firewood, snowplowing, homeowners association, etc, etc, surely has.
The older the house gets (like the owner) the necessity for repairs and ongoing maintenance goes ever onward and upward. There was a time when I could do some things myself, but the repairs to my knees and other joints are also getting to be expensive. And painful.
We live on a private road in a small rural subdivision where we had a culvert under the road fail last year. Cost $17,000 to replace. This would have probably cost at least $100,000 in a major city but we don’t have Union labor out here in the boonies. Just some locals with an excavator and a lot of expertise. The $1 Trillion of infrastructure boondoggle would not have included us.
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The market value of my property has doubled in 10 years, so I agree that CB’s have been blowing asset bubbles. I have seen very little price inflation over the last 10 years in areas such as food, clothing and most personal use products. The prices of many things affected by technology continue to drop in price (as they always do).
I expect the next 10 years to be similar to the last 10. Low growth, low prices, low interest rates and no wage increases for the bottom 90%.
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You don’t see an increase in prices of food because they hide the inflation by lowering the product size. Look carefully at half gallon of orange juice, it’s not 64 ounces, but 59 ounces.t only
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you mean housing and healthcare.
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“Central Banks Puzzled as Global Inflation Hits Lowest Level Since 2009”
Something which will never be heard, “Hmmm, our economic theory and the models based upon it must be cr*p…”
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I miss VegasBob.
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I think it’s fair to add a couple of percentage points to the reported inflation rate to arrive at the actual rate. So if they say it’s 2 percent, it’s really about 4%.
Also, inflation since the 1990s has been disguised by cheap Chinese imports. Of course, reality has finally caught up with the U.S. and those imports aren’t so cheap anymore.
Also, the quality of a lot of stuff we buy has gone down over time, further disguising the real inflation rate. An airline trip today is not the same as it was 2-3 decades ago because the seat room has drastically shrunk and you have to pay extra for every service that was once included in the fare.
The chicken you buy in the store today is not comparable to the chicken you were able to buy 30-40 years ago. You have to buy free range organic today to get the same quality. A chicken that reaches adult size in 35 days and is pumped full of hormones and antibiotics is a franken-chicken and tastes like one too.
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Lack of numerical creativity is the real problem.
Late night lunacy. Since the CPI figure is arrived at through an equation, just multiply the final number by a correction factor (1.02 to tack on an extra 2%; 1.04 to tack on 4%; etc.). Just have some brainiac bubblehead invent a lot of incomprehensible Keynesian jargon to justify the correction factor as making up for systemic mismeasurements (as perceptively noted, nortino). Scientists do that kind of thing all the time. Voila, problem solved, inflation at long last.
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At the end of the day its about keeping the system running. Liabilities far exceed assets and for a long time this was only in the potential state. Asset collection and leverage was the game. Now that the liabilities are due, many traditional buyers are now sellers. This has forced the CB’s to lever up and underwrite bond issuance to keep up the cash flow in the economy. The debt profile needed to keep the economy afloat is pretty scary. Any sort of fiscal drag will tip the economy into a deflationary recession and any sort of sustained inflation will destroy income statements from surging servicing costs. BUT the motor of the system is unchanged. Fiscal thrust drives the incremental cash flow in the system. CB’s and government policies have propped of final prices through massive subsidies to the corporate sector. The gap between where output prices are and should be, imho, are significant. The deflationary risk in the system is much larger today than pre-financial crisis. The fat man has simply gotten fatter. All this corporate subsidy through the years, borrowing to support prices. The deficit financed price stability mechanism (DFPSM) will work until is doesn’t. And when it doesnt its not gonna be fun. Inflation and credit are completely mispriced. The policy makers can’t afford inflation or deflation. They need no vol for ever. Too bad for us all.
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If it is not rooted in material reality it is BS
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If you ignore the fact that more and more money goes towards debt then maybe it’s a mystery what people are spending their money on. Do they just act stupid or can they not put the two together?
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Everything unaffordable except the small food and fuel they choose to measure.
As long as we have basic gruel and gas to get to the slave tax job then I guess they think they’ve measured what matters.
Parasites is what they all are
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“No Puzzle”
It’s called pushing on a string. Also known as the law of diminishing returns.
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Now THAT graph looks about right!
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Mish,
thanks for the deflation argument back in 2007-08. Illuminated much and helped make me a packet.
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You are very welcome
Thanks
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thanks here too. Except only partly accepted deflation argument. Fortunately that was enough to keep from loosing a lot more money.
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Now I know why David Stockman refers to the Eccles Building as the Puzzle Palace.
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Global inflation is hitting new lows because …
1) Globalisation is finally achieving its stated goals;
2) Demand really is dropping off because wages have been pushed down;
3) Official measures grossly understate inflation because they leave out key factors; or
4) Some combination of all of the above.
If Central Bankers aren’t finding inflation, it’s because they are not looking. They could start by doing the family shopping from time to time. They own their own, often opulent, homes, so I don’t think they’ll get the rental experience of their average citizen.
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When future consumption has been brought forward to today and people are up to their eyeballs in debt servicing costs what else can be expected?
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Having reached peak debt and with half the population not having a spare $400 in cash for an emergency, people are tapped out, functionally broke and lacking the money or spending power to bid up the prices of goods, even if they “own” expensive assets like houses. I use “own” in quotes, because with 30-year mortgages hard to parse the question of actual ownership. I know lots of people owning very expensive urban houses who have little spending cash, eat out very sparingly, etc. Unless you are a termite, you can’t eat houses.
No doubt higher income taxes, sales taxes, etc. at all levels of government collectively are excessive in quantity, continue to escalate, and consume way too much of family income, leaving less for bidding up the prices of goods. In California, sales taxes are a 10% mark-up on all goods, adding $3,500 to the cost of a $35,000 vehicle. Meaning that much less money to spend on other goods. Enforced government spending mandates like Obamacare (a tax according to Supreme Court) reduce family income and are in essence government mandated impoverishment. Weight Obamacare and taxes higher in the CPI, and Janet Yellen and the Fed would be crowing about achieving over 10% inflation without any need for QE, negative interest rates or bans on cash.
Another possibility is that people have reached the psychological saturation point with material goods, and feel like they are materially fulfilled and have enough. Even if not materially fulfilled, people are no doubt becoming reconciled to their lack of spending power. Hard to go out and bid up prices when you are tapped out or “running on fumes.”
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Another possibility is that people have reached the psychological saturation point with material goods, and feel like they are materially fulfilled and have enough. Even if not materially fulfilled, people are no doubt becoming reconciled to their lack of spending power. Hard to go out and bid up prices when you are tapped out or “running on fumes.”
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Sorry, hit the wrong key.
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Just like Yellen.You ain’t better
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Debt, debt and more debt is a drag on the world economies, an anchor. All of the money pumping went where it was not needed – instead of producing growth – because the CB’s cannot control the flow once it leaves the fire hose. They are now faced with a great unwind as they attempt to create some leverage for themselves when the next recession occurs. Problem is that in the unwind they will create the recession they dread. They have created and endless trap, a virtual continuous loop that will only be broken when the economies collapse.
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Isn’t your debt my asset?
Who’s this ‘me’ pale face?
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I don’t think they’ll get the rental experience of their average citizen
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The “Self-Driving Car” is Only an Oxymoron
Over at Tesla, Google, and Uber — and now the contagion has reached Ford, General Motors, Chrysler and beyond — the smartest guys in the room are talking autonomous vehicles.
Over at every hedge fund, venture-capital and wealth-management shop in the universe, the smartest guys in the room are throwing money at the concept. Why? Because it’s the Next Big Thing, that’s why.
Billions of dollars are in play.
Which is why we are seeing an avalanche of faux-news stories about the coming era of driverless cars, how they’re on the streets now, how well they are doing in testing, how soon there will be nothing but driverless cars on all our roads.
And all this chum in the financial water has served its purposes: the hedge fund sharks, and the Masters of the Universe they serve, are in a feeding frenzy; and the gullible public is giddy with anticipation.
Meanwhile people with a lick of common sense are saying, wait a minute, doesn’t this sound oxymoronic, like clean coal, or safe sex? In today’s world, people with licks of common sense do not get funding to answer their questions, and therefor the skeptical questions you might have about “driverless cars” are almost unanswerable. Until right now, right here:
Is there such a thing as a “driverless car?” Not yet, there isn’t. The conditions for allowing “driverless cars” on the public roads in a few states unanimously specify that the driverless car has to have a driver who is ready to instantly take control of the vehicle. Moreover, what they are driving and testing are prototypes and jury-rigs; no one has yet built an autonomous vehicle. (Tesla cars offer “auto-pilot,” but it isn’t.)
So almost all the stories you have read and seen about “driverless cars” on the road are fake (some fastidious journalists write about testing cars that are capable of becoming autonomous, but most people read right through the fastidiousness).
How are the potentially driverless cars doing in their testing? Awful. For example, in the first week of March, Uber’s 43 test cars in three states logged some 20,000 miles on public roads. Their drivers had to intervene and take control away from the software, an average of once every mile.
Critical interventions, required to save lives and property, were counted separately; they occurred every 200 miles. Which makes your life expectancy, as a passenger in a truly autonomous car, approximately four hours.
How much will a driverless car cost? No one has a clue, because no one has built one yet. As Consumer Watchdog put it in its devastating report on the imaginary industry, “No completely self-driving vehicle is offered for sale today, and notwithstanding a great deal of marketing hype, no manufacturer has set a firm date when it will market a passenger vehicle that is able to operate in all conditions without human intervention, or, importantly, what it will cost to buy.”
Just to hazard a guess here, my bet is that the early adapters to driverless cars are going to have to choose between buying the car and buying that second fully-staffed luxury yacht.
Would driverless cars need new infrastructure? You bet your booties. No one has even begun to plan, let alone estimate the cost of, a national network that would support the car-to-car, car-to-road and car-to-satellite communications that would be required by tens of millions of driverless cars. Figure that out, and then specify who is going to pay for the staggering cost, while our bridges collapse, our interstate highways continue to rot, and our potholes continue to eat 18-wheelers. Then you’ll have a plan.
What about insurance? Worry not, the insurance companies are on this, 24/7, with a full-court press in every state. Not, as you might think, to figure out how to equitably insure the vehicles and arbitrate liability; but to demand that all the state immediately suspend regulation of and restrictions on the insurance companies lest — and this is a quote from a top insurance lobbyist — the regulators “chill this promising technology and the huge advances in overall public safety it promises.” Speaking of chill — did you just feel one? You should have.
Bottom line: “driverless cars” are not here, and not coming. Like artificial intelligence, virtual reality, genetic engineering and other “next-big-thing” oxymorons, what we’re really talking about here is a high-tech con, designed to separate real morons from their money.
http://www.dailyimpact.net/2017/08/03/the-self-driving-car-is-only-an-oxymoron/
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VR is here and making a difference. It will be big in training and education.
AI – it’s here and only just starting. Best when augmented by human input too, but real.
Genetic engineering – its here and nascent Synthetic DNA is starting – I have involvements in that area.
The difficulty is picking winners not the doubt that these areas won’t be massive – they will be.
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Picking winners is one thing
Collecting is another thing
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They’ll get here eventually … but I’m still waiting on my flying car, like George Jetson.
My current auto has a lane-hold feature that automatically disconnects if you keep your hand off the wheel too long … how’s that for a driver-training feature?
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Every science is concerned with measurement. There are two principles to measurement. The first is:does the measure what it purports to measure? If i am measuring the length of a 2×4 using a standard tape measure then yes, my measurement is measuring what ti purports to measure, the dimension of a piece of lumber. If I am using a volt meter then my measurement is not measuring distance of any type. The second principle is reliability:when I make the measurement time and again do I obtain the same results?
It is obvious that neither sociology nor economics are sciences since they lack a rigorous application to the science of measurement. Is it any wonder that the prudent individual will look upon economic predictions as questionable.
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“Unruly economy, discipline !!”
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Since the late 1800s and the growth of the industrial revolution, various folks have come up with philosophies about how to govern a society such that the poor won’t concern themselves with the inequities in society. So that they won’t choose to rid themselves of the wealthier classes. In the prior years, the Catholic Chirch filled much of that role.
In the USA, the American Manufacturer’s Association came up with the idea of constant progress. The idea being that if you can convince the poor that we live in a world of wonder, and the next big thing is right around the corner that will change their life forever, they won’t spend their time wondering why their betters are taking their private jets to Paris for the weekend, while they are trudging off to their second job to pay their rent.
So no, we won’t have autonomous, flying cars, 3D printed luxury villas, or SpaceX Mars trips. But you can dream about it as you buy your lotto tickets and head off to schlep timeshares from your cubicle.
It works. Very, very well.
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There is no such thing as a single inflation number. Inflation affects everyone differently. The whole notion of one single inflation number is the idea that a central bank can measure inflation for everyone, decide on interests rates for everyone, and generally control the size of the money supply to best suit the needs of the economy, which is all central planning nonsense.
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Inflation cannot be properly measured at all
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Those taking the CPI numbers that are currently being reported to heart are vulnerable to future economic risk. We should be aware the numbers government pumps out today are the result of changes made in the 1990s when political Washington moved to change the nature of the CPI.
The aggregate impact of the reporting changes since 1980 has been to reduce the reported level of annual CPI inflation by roughly seven percentage points meaning there is no question as to the understatement of inflation. The effects are cumulative going forward so, over time the CPI has become less of a reflection of true inflation. More on this subject in the article below.
http://brucewilds.blogspot.com/2017/07/the-cpi-understates-inflation-and-skews.html
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The Fed doesn’t see bubbles as long as the right people are profiting. How long can these incompetent “economists” get away with this? It says a lot about academic “economists” that criticism of the Fed, or even healthy scepticism, is virtually non existent. Just more proof that the people who try to pass off economics as a science are really just apologists for the status quo.
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I do not believe in accidents or delusion when it comes to government and bank policies. The measurement parameters were chosen to give the intended results. Banks and governments do not want inflation. Inflation results in higher interest rates which debt heavy governments and financial systems cannot handle. They do not see inflation because they don’t want to see it.
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How long before the shabby credit histories of the lower 75% become something the credit bureaus no longer wish to see?
Voila! Instant upgrades from FICO. Across the board, one fell swoop and I mean everybody! A nation of nascent social creditors, no longer waiting for their government to ration out their share of universal basic income gruel.
A whole new credit cycle. The 650 Fico score is the new 820. Now get busy and shop, just as Dubya told you to do post-Sep 11.
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Need help!! Canadian here for the first time. Will do some reading around to find the answers im looking for.
Ive started to take money out of stocks. I really dont know what to do. I have a decent sized investment account. My wife and I have also amassed a lot of cash (~200k) that we were going to use for a house, but with prices astronomical in Toronto it doesnt make sense to buy.
What do I do with my money? Will its value erode? Is holding cash the right move? I have some metal stocks/price etfs in my investment account, but its mostly cash.
Really dont know what the
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Congrats for staying in the market as long as you did. Be patient! a better buying opportunity awaits in cash even if cash temporarily loses.
Meantime buy a bit of gold and miners
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Hi Mish,
Appreciate your response. I will pick up some gold/miners and hold cash. Thank you.
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O/T holiday news in EU
Security delays due to new Frontex rules cause several hour queues and missed flights for non-schenghen travellers , the political blame game at
http://www.politico.eu/article/airport-shambles-leaves-brexiteers-fuming/
Juncker “falls in love with Greece”…. as part of EU
http://www.keeptalkinggreece.com/2017/08/04/juncker-greece-fight-grexit/
And to note anti-tourism movement started in Spain, with various demonstrations, mostly in Cataluña, but other regions forming protest groups also. Visible in the local media but not a mass movement … the sort of theme that lays options and might claim adherents if there is some kind of wider revolt…otherwise just antagonising antagonisms.
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Games people play. Anyone wanting to do harm in the EU is already there. No need to make life awkward for law abiding tourists.
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It would be a complete irony if the next attack was on a security queue. Frontex for terrorism is an excuse, a convenient coincidence, the idea and organisation and funding were prepared well before the refugee crisis, it is no more than the shaping the European public’s recognition of central authority, as well as to validate it and clear out national sovereign existence. That is a much more dangerous game than queues or terrorism.
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Questions.
1) How would you measure the total well being of a population? What things would you measure?
2) If you set up any agency with a mandate to try to optimise total well being what would you give it control of – tax, rates what?
3) How would you explain the aims of such an agency in such a way the majority of a population would support it and be prepared to contribute to its aims through their labour and intentions?
I ask because I wonder if time is coming to make some fundamental changes, very fundamental.
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1. No measurement would be accurate but rising standards of living is what one would expect to see
2. Never set up an agency to do this – a huge counterproductive waste
3. There would be no agency
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About “It’s no mystery why central bankers are mystified: Collectively, they are economically illiterate fools engaged in Keynesian and Monetarist group think.” Mish, if you are not a Keynesian nor a monetarist, what theories do you believe and do you have links or references about them.
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Check out my recommended reading list on the right
Economics for Real People: An Introduction to the Austrian School
https://www.amazon.com/s?ie=UTF8&keywords=Economics%20For%20Real%20People%20Callahan&search-type=ss&tag=mish04-20&index=books&link_code=qs
Economics in one lesson
https://www.amazon.com/s?ie=UTF8&keywords=Economics%20One%20Lesson%20Hazlitt&search-type=ss&tag=mish04-20&index=books&link_code=qs
Capitalism for Kids
http://www.amazon.com/s/ref=nb_sb_noss_2?url=search-alias%3Dstripbooks&field-keywords=capitalism+for+kids&rh=n%3A283155%2Ck%3Acapitalism+for+kids&link_code=qs&search-type=ss&tag=mish04-20
Also get these free Ebooks.
https://mises.org/library/what-has-government-done-our-money
https://mises.org/library/case-against-fed-0
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Thank you for the quick reply.
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This is a good one to read.
The man was charged for giving data away with consulting the authorities.
EU is explicitly saying Greeks are dishonest and the judiciary biassed.
You can read this as the Empire intervening in a colony. The future.
http://www.keeptalkinggreece.com/2017/08/03/commission-georgiou-elstat-justice/
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Central bankers are like someone who drives with one foot on the gas pedal and the other on the brake, alternatively pressing harder on the one or the other (“as conditions warrant” he, he). The two pedals are also known as inflation and deflation. Driving this way kind of wrecks the motor and the brakes, but the central banker thinks he is the only really good driver who can manage this. Which gives out first does not matter — in the end the car (economy) will stall and crash or crash and stall.
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The distribution of debt/wealth does not matter (half the population dependant on government programs, one third with full-time work, 400 families own 60% of the “assets”). After all, there is no prima facie reason to suppose that the spending/hoarding preferences or liquidity/cash flow of one borrower or lender and another should differ materially. [say Jef Bezos or a family camping in their car]
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I doubt that the Central Banks are prepared to acknowledge any set of facts which would require allowing interest rates to be set by the free market…that is, not subsidized. the reason is that they work for the largest debtors in the world…national governments. If the US Treasury had to fund its debt at market rates, it would add $600 or more billion to the cost of carrying that debt. That would crush federal budgets, as it would overwhelm “entitlements” and defense. Congress would be thrown out of office and the conservatives would now have the general public sharply in favor of balancing the budget.
That is not going to emanate from the “Swamp” in Washington. Janet Yellen is but another soldier in the eternal quest of government to steal from the public to expand its rice bowls.
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– If you want inflation then increase wages and make sure asset prices are rising.
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According to central bankers, inflation is generated by the gap between the demand for goods and services and the economy’s ability to supply them. WSJ
The economy’s ability to supply goods and services has been unethically financed with what is, in essence, due to government privileges* for private credit creation, the legally stolen purchasing power and saving/investment opportunity of the workers and the general population.
It’s no wonder then if the economy’s ability to supply goods and services has outstripped the ability of the population to afford them – even with falling prices since, for example, a worker replaced by a robot might easily have NO INCOME AT ALL.
As the economy grows and demand strengthens, that output gap should narrow and prices should rise. WSJ
Government privileges for private credit creation favor the rich, the most so-called worthy of what is then, in essence, the PUBLIC’S CREDIT but for private gain so it should be no surprise that the gains from productivity increases have accrued largely to the rich. But the rich can already afford to consume as much as they desire while the unethically disemployed very often can not.
So unethical finance is self-defeating if a growing economy is the objective.
The ethical solution? ans: reform of the system with restitution for the victims, e.g. PROPER abolition of government provided deposit insurance should require massive amounts of new fiat to be equally distributed to all citizens.
The issue which has swept down the centuries and which will have to be fought sooner or later is the people versus the banks. Lord Acton
*e.g. government provided deposit insurance for the banks instead of inherently risk-free accounts at the central bank itself for all citizens. This has the effect of rendering the liabilities the banks create (“Bank loans create bank deposits”) largely a sham wrt the non-bank private sector since bank liabilities are for fiat, which, except for grubby, unsafe, inconvenient physical fiat, aka “cash”, the non-bank private sector MAY NOT EVEN USE**!
** e.g. Citizens may have fiat savings accounts at US Treasury Direct but these do not provide checking or debit services thus rendering them useless for everyday commerce/use.
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t only
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