I think inflation has been low for so long for several reasons -...

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1ronnie

20,836 Posts.

1965

09/08/19

09:57

Post #: 39937445
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Originally posted by Charkitz ↑

You make some good points as always Ronnie, hopefully my optimism isn't misplaced!

The big difference between the GFC and now as far as I can tell is that the 3 years leading up to 2007 saw an unprecedented rise in share prices. They balooned to a whopping level. People who bought in 2006-07 were bearnt, giving the impression that the market had imploded, but in reality it just fell below the long term trend line. Whereas now the market is still only trending at the long term mean, keeping in mind that the ASX is only now reaching where it was in 2007

The graph here shows it quite clearly if when the historical chart is clicked and set to Max

https://tradingeconomics.com/australia/stock-market

Also, immigration is the main reason inflation hasn't gone anywhere. Immigration creates more competition and immigrants to western world countries are generally willing to work longer hours for less pay. That has all sorts of flow on effects

And of course there's more competition in most sectors anyway created by the online world that we now accept as normal. Whether it be airlines, retail, health etc. The days of companies having a monopoly are mostly gone, with the exception of airports and maybe one or two others

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I think inflation has been low for so long for several reasons -
* Globalisation forces kept prices low , domestic companies need to keep prices low to compete effectively because consumers have easier access to cheaper external suppliers
* Purchasing power is waning because of high household debt; so even lowering the interest rate cannot be as effective as before because households use the interest save to pay down debt instead of spending
* Confidence is so important for the economy and right now it is low and when confidence is low, consumer and business spending will be low, capital investment will get lower and no help from POTUS, Brexit , driving an ever lower velocity of money (money not changing hands as much , so people squirrel away the tax cuts they receive rather than spending it)
* Technological advances created lower cost solutions
* Demography changes- as baby boomers (with the money) retire, they spend less, that means with more retirees making up a large % of population, the rate of spending slows keeping in check price inflation (just like what is happening in Japan)

If you look at each of the above and the combined effects of them, you wonder how effective will monetary and fiscal policy be in helping shoring up the economy , and it is for those reasons I think we will be in sub-par economy for a rather long time even if we can avoid a recession (or a depression).
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0 Great analysis

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