inflation vs deflation - again, page-8

Seeing as this thread is away, I'm going to transfer my earlier comments over here:


I know there's many out there who believe we are going to have deflation, which I have constantly argued against. Mike I know your one of them. I honestly have to say I don't think you guys are looking at the actual data, instead doing what many of us have done (and I'm guilty as charged) and listened to a newsletter writer who has put forward a good argument (or ctindale here on HC).

0146 GMT [Dow Jones] Australian core inflation rises more than forecast in 1Q. While inflation targeting not priority for RBA at present, numbers will temper market expectations for RBA easing somewhat in medium-term. Average of core RBA measure of CPI +1.1% on-quarter, above +0.8% forecast, and +4.2% on-year, above +3.85% forecast. Headline 1Q CPI +0.1% on-quarter from minus 0.3% in 4Q, +2.5% on-year from +3.7% in 4Q. Economists surveyed by Dow Jones forecast 1Q headline CPI +0.5% on-quarter, +2.8% on-year. Moderately supportive for AUD/USD. Bonds little changed on data. (SRH)


Now thats a core measure of 1.1% qoq & 4.2% yoy. Headline is at on the quarter at 0.1% which is a 0.4% rise from the last quarter figure of -0.3% and yoy even the headline number (including oil which has plummeted) is at 2.5%.

Yet we are in the first economic contraction in 17 years or so. Now I'm not having a dig in the slightest, honestly. I just can't see where the basis forthe argument for deflation is coming from. UK and Oz CPI figures have been quite suprising to the upside, and money supply across the GLOBE is expanding at a historically rapid rate.

Until the economy gets back to positive growth we are unlikely to see any kind of explosion in inflation, sure, but it appears likely that we will hover around the target bands, but seriously what happens when economies the globe over move back into positive (even if below par) growth. Remember the world is not about to end. This will occur before the end of 2010 most likely.

At that point in time all this extra money supply will start circulating far more rapidly (velocity) and I can only see one outcome. Rising above average inflation.

One of the arguments that is often cited against this, is the disappearance of vast sums of money into the derivative abyss...........but thats not really occuring.

Thats all being paid off by western governments through the tax payer bailouts. The money is being given to certain institutions and its being paid out to the 'winning bets'. There's no lost money as far as I can see. Yes assets may have declined in value, but that has happened numerous times since the depression and yet not once since the depression (where the money supply was contracted) have we sen deflation.

So lets see some facts and figures. Lets try and keep the musings of newsletter writers and what people 'think' might happen after they've read loads of books on debt deflation and look at the data and its historical trends and precedents.

Where is the evidence that deflation is a major threat as it last was in the Great Depression