The odds of disinflation are mounting as the world economy
slows anew and commodity prices slide, defying forecasts that
easy money would trigger an acceleration of prices. More than
half of the world economy, including the U.S. and the euro area,
instead confronts inflation below the central banks’ desired
levels, according to Ethan Harris, co-head of global economics
research at Bank of America Corp. in New York.
“There is a developing inflation problem: undesirably low
inflation,” said Harris, a former Federal Reserve Bank of New
York economist. “For central banks, this increases the pressure
to maintain super-easy monetary policy.”
Declining prices for everything from gasoline to coffee are
good news for consumers. The danger comes when disinflation
turns into deflation, which leads households to hold off
purchases in anticipation of even lower prices, and companies to
postpone investment and hiring as demand for their products
dries up and profits drop.
Let's start by looking at a chart of commodities and ETFs representing some of the largest commodity groups:
Oil has been trading between 85 and 100 for a little under a year.
Both grains (top chart; wheat, corn and soy beans) and softs (bottom chart; coffee, cotton and sugar) are in the middle of a year long decline.
Copper is also trading just above multi-lows.
And finally, gold (which I use as a proxy for inflation sentiment) has broken through support and is trading at the 200 week EMA.
This is translating into weak price pressures across the globe.
The EU is experiencing declining prices. The rate of year over year percentage change is declining for the last three months.
And above is a chart of the year over year percentage change in CPI for the UK, US, Japan and China. Notice that prices are very much contained.
Anyone talking about inflationary threats or hyperinflation isn't paying attention right now.