Comments on: Inflation Consensus?

By: blam

blam — Thu, 21 Jun 2007 00:46:54 +0000

The long term pressure is, and has been, deflationary. That’s what all the printing press has been about. When growth in real wages lags productivity growth or when high wage consumers (US) are replaced by low priced peasants, consumption and thus, GDP, sag, putting downward pressure on prices.

The Fed has to create a credit bubble so that borrowed money can be spent to prop up consumption. Fait Accompli.

But, the excess business profit is spent, increasing supply. Also fait accompli with the construction of a complete supply chain in China and surrounding areas.

Fake money eventually creates a credit crisis and the bubble breaks. More high wage consumers (US) put out of work collapsing consumption. Low wage, non-consuming peasants get tough and lower prices further.

Bubble bursts. The golden goose has been slain and eaten. Deflation (depression) wins. At least it did in the only modern period in which the financial playing field mostly resembled the current one.

Hopefully, I am wrong. The world’s number two has been mired in a bubble-burst-induced depression for 10 years.

By: ManhattanGuy

ManhattanGuy — Wed, 20 Jun 2007 20:15:52 +0000

Talk about inflation …

New York Times Raise cover price by 25 cents.

http://biz.yahoo.com/ap/070620/new_york_times_pricing.html?.v=2

By: Fred

Fred — Wed, 20 Jun 2007 19:33:35 +0000

I don’t have a link to the work, but Hays Advisory showed a chart that displayed rate cuts every time 90 day bills fell to 10% below the FFR (and stayed there for a few weeks). It may have actually been Yardeni’s work…not sure. I believe Navellier has also been noting this historical “cause/effect”.

Note….it has moved back (slightly) above 90% of T Bills at 4.74%. So cut are not a lock. Something to watch, however.

By: Estragon

Estragon — Wed, 20 Jun 2007 18:49:16 +0000

Fred “…looking at the 90 day T bill. It is strongly suggesting a coming rate cut.”

To me, it looks like the 90 day is seeing money coming out of longer durations. Why do you believe this strongly suggests a cut?

Not scoffing, but…

By: wally

wally — Wed, 20 Jun 2007 18:01:17 +0000

Perhaps it is time to redefine the ‘core’ yet again and exclude Chinese-made items. That should keep things steady.

By: Henry

Henry — Wed, 20 Jun 2007 17:35:51 +0000

I believe inflation is just a monetary event. More money are chasing only limited goods. China, Japan and other asian countries hold our IOU before. Now they are using our IOU to buy (diversity from $). At the same time our customers may purchase less. Just do some calculations on the plus and minus, you will get the right idea.

By: cm

cm — Wed, 20 Jun 2007 16:20:30 +0000

REW: “the bulk of [inflation] has YET to hit the CPI”

Well, it certainly has already hit the grocery store shelves. But maybe that indeed hasn’t been the “bulk” yet.

By: rebound

rebound — Wed, 20 Jun 2007 15:39:49 +0000

“…Corporations will have to raise prices to eke out all that guidance they have force fed wall street…”

Maybe not.

After too much stimulus and there is too much manufacturing capacity which has come online (China comes to mind) and consumers have over spent (America comes to mind), inflation could drop quite a bit … as in deflation.

In a correction, consumer would slow spending because they are tapped out. Businesses slash prices and have fire sales to move inventory. Rinse, repeat. Vicious cycle.

Hopefully inventories are not too high right now. I haven’t checked the numbers in a while.

Of course this might not happen, and there could just be a correction. I’m just trying to say there are market mechanisms which could cause inflation to drop. Just like Real Estate Inflation has stopped.

By: m3

m3 — Wed, 20 Jun 2007 15:33:17 +0000

i think i’m going to side with MS.

the 70′s have proven that a slowing economy will not necessarily reduce inflation.

a contraction in credit will reduce inflation, not the other way around. i thought milton friedman settled this debate long ago.

BR maybe right that core may go down, but the real inflation rate will probably not.

By: Sweeny Texas

Sweeny Texas — Wed, 20 Jun 2007 15:30:12 +0000

MS,

It seems to me the only corporations that will be able to raise prices are those that produce our basic necessities. And they have already been doing it. If the health of our economy depends only on how rich the stockholders of oil companies and drug manufacturers are getting, we’ll be just fine. But I ain’t counting on it.