econintersect.com
       
  

FREE NEWSLETTER: Econintersect sends a nightly newsletter highlighting news events of the day, and providing a summary of new articles posted on the website. Econintersect will not sell or pass your email address to others per our privacy policy. You can cancel this subscription at any time by selecting the unsubscribing link in the footer of each email.



posted on 19 September 2015

Double-Digit Imported Deflation

from the Lakshman Achuthan, Co-Founder and Chief Operations Officer of ECRI

Six years ago - the last time global import price deflation was this intense - the worst global recession in decades was ending. A key question today is whether recession risks have mounted in the U.S. or any other major economy.

Earlier this year, year-over-year (yoy) world import volume growth dropped to its lowest readings since 2009. Today, it remains in a decisive downturn and near May's five-and a-half-year low, a far cry from the surge that followed the global recession. Clearly, after years of extraordinary policy stimulus around the globe - aimed at pulling demand forward from the future - world trade growth has collapsed.

Even worse is the nosedive in yoy import price growth, which has been exhibiting double-digit deflation since the beginning of the year (bottom line). Indeed, the only other time on record the world has seen such intense import price deflation was during the global recession.

Certainly, the fall in crude oil prices has played a role more recently. But the world import price level peaked in April 2011, and dropped by 18% over the next four years. So this is not just about the plunge in oil prices over the past year or so.

In fact, in the U.S., yoy growth in import prices excluding petroleum has been in negative territory since the end of last year, and is now near readings not seen since the fall of 2009 (not shown).

The deflationary plunge shown in the chart is mirrored in every region - the U.S., Japan, the Eurozone, Central and Eastern Europe, Emerging Asia, Latin America, and Africa and Middle East - not only for import volume growth, but also for import price growth. Analogous patterns are also evident in the growth rates of the volumes and prices of exports - the flip side of the same coin - for both advanced and emerging markets, as highlighted recently.

Clearly, U.S. import price growth is deeply deflationary - more so than at any time except during the Great Recession. What we see here are deflationary pressures being transmitted through trade worldwide. Thus, for the foreseeable future, import price deflation is likely to keep overall inflation in check around the world.

Policymakers in this century have repeatedly pushed to postpone the payback for previous policy initiatives to boost demand - in the wake of the collapse in the tech bubble, which a housing bubble was designed to supplant, as well as the fiscal stimulus packages, zero interest rates, and QE, all in attempts to push off what is ultimately inevitable in any market-oriented economy, i.e., the next business cycle recession.

Much of what we have written about over the years is now coming to the fore, starting with declining U.S. trend growth, which we first identified seven years ago. But with trend growth in real GDP falling around the world, and deflationary forces intensifying, the only two ways to repay the massive global debt load - generate sufficient real growth, or inflate it away - both seem out of reach. Under the circumstances, as we concluded earlier, "all of these economies are effectively circling the drain," because "in the fullness of time, all [of them] are likely to face a day of reckoning - and earlier than most expect," even though "the process may involve a rush to a succession of 'safe' assets in the interim."

Many economists have declared the risk of recession to be extremely low, not realizing that the U.S. economy is in a cyclical slowdown with no end in sight. Though a recession is not yet at hand, such circumstances can eventually take U.S. economic growth within striking distance of recession, especially given the reality of low trend growth.

While we have characterized the 2012-13 period as the worst non-recession in half a century, revised GDP data shows that it may have been an even closer shave. We now know that, in the second half of 2012, U.S. real GDP grew at a scant ¼% a year annual rate, revised down from the previous 1¼ % estimate. In other words, if the economy once again enters a window of vulnerability, it will be very hard to avoid a recession, unless circumstances result in the severe suppression of cyclical volatility.

From our cyclical vantage point, we have long been aware of the truism that recession kills inflation. Therefore, when the next recession arrives, it is more likely to push inflation below zero at a time when the Fed has no obvious policy response. The resulting deflation would be the stuff of policy nightmares.

>>>>> Scroll down to view and make comments <<<<<<

Click here for Historical News Post Listing










Make a Comment

Econintersect wants your comments, data and opinion on the articles posted.  As the internet is a "war zone" of trolls, hackers and spammers - Econintersect must balance its defences against ease of commenting.  We have joined with Livefyre to manage our comment streams.

To comment, using Livefyre just click the "Sign In" button at the top-left corner of the comment box below. You can create a commenting account using your favorite social network such as Twitter, Facebook, Google+, LinkedIn or Open ID - or open a Livefyre account using your email address.



You can also comment using Facebook directly using he comment block below.





Econintersect Contributors


search_box

Print this page or create a PDF file of this page
Print Friendly and PDF


The growing use of ad blocking software is creating a shortfall in covering our fixed expenses. Please consider a donation to Econintersect to allow continuing output of quality and balanced financial and economic news and analysis.


Take a look at what is going on inside of Econintersect.com
Main Home
Analysis Blog
Minsky’s Theory of Asset Prices: Why Minsky Was NOT a Neo-Monetarist
Finance and Growth: The Direction of Causality
News Blog
13 January 2017: ECRI's WLI Growth Index Insignificantly Improves
Rail Week Ending 14 January 2017: Some Improvement
Majority Of Job Seekers Uncertain About Trump Impact
How To "Buy Low And Sell High" Like A Pro
Infographic Of The Day: Unusual Pets
Early Headlines: Asia Stocks Mixed, Oil Up, Dollar Down, China GDP On Target, GOP Govs Defend Medicaid Expans., Trump Wants To Cut Fed. Spending By $ 1 Trn, Trump's Troubling Foreign Deals And More
The Fake News That Sealed The Fate Of Antony And Cleopatra
The Jobs With The Biggest Cash Bonuses
Astronomers Spot Strange, Bow-like Structure In Venus' Atmosphere
Raising A Child Is An Extremely Expensive Undertaking
The World's Staggering Wealth Divide
What We Read Today 19 January 2017
OK Go - The One Moment - Official Video
Investing Blog
How To Invest In Oil For Long-term Investors
Investing.com Technical Summary 19 January 2017
Opinion Blog
What Is The Natural Interest Rate - And What If We Go Above It?
A New Deal With Capitalism Requires A Revolution In Politics And Markets
Precious Metals Blog
Four Catalysts Drive Gold And Silver For 2017
Live Markets
20Jan2017 Pre-Market Commentary: US Stock Future Indexes Higher Ahead Of Inauguration, WTI Crude Testing 53 Handle, Blue-chip Earnings Are Topping Estimates
Amazon Books & More






.... and keep up with economic news using our dynamic economic newspapers with the largest international coverage on the internet
Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government





























 navigate econintersect.com

Blogs

Analysis Blog
News Blog
Investing Blog
Opinion Blog
Precious Metals Blog
Markets Blog
Video of the Day
Weather

Newspapers

Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government
     

RSS Feeds / Social Media

Combined Econintersect Feed
Google+
Facebook
Twitter
Digg

Free Newsletter

Marketplace - Books & More

Economic Forecast

Content Contribution

Contact

About

  Top Economics Site

Investing.com Contributor TalkMarkets Contributor Finance Blogs Free PageRank Checker Active Search Results Google+

This Web Page by Steven Hansen ---- Copyright 2010 - 2017 Econintersect LLC - all rights reserved