The Internet Helped Kill Inflation In America, Says Credit Suisse

Tyler Durden's picture

Whether or not San Francisco Fed President John Williams is right about US inflation and employment being about as close to the central bank’s targets as investors have seen - as he told CNBC two days ago - is irrelevant: The central bank is going to raise interest rates two more times this year no matter what happens to consumer prices, says Credit Suisse Chief Investment Officer for Switzerland Burkhard Varnholt.

That's because it's pointless waiting around for prices to rise when the real reason inflation is low - and will likely remain low – has nothing to do with the Fed, but with a structural shift in the US economy that’s being driven by technology giants like Amazon and Uber. Burkdard says these companies have “turned most companies and sectors into price takers rather than price makers."

“Well look, inflation has been gone for quite some time and what’s really killed inflation clearly isn’t the Federal Reserve’s monetary policy but the Internet – it’s the sharing economy, the network economy it’s the uber-deflationary companies like Uber, Amazon, Airbnb and the like who have transformed most companies and most sectors into price takers rather than price makers.”

 

When asked if there’s anything about the market that investors might be ignoring, Burkhart replied that investors might be underestimating demand for bonds in the coming years – especially at the long end of the curve.

“Monetary policy in 2017 will be about ‘walking the talk.” That means two rate hikes as [the Fed has] guided the public to expect will likely come forward, but that’s a small step in not a big picture, because the big picture – is that capital markets yields will remain lower for longer in the absence of inflation and also in the presence of structural excess demand for long-dated government securities from aging populations whose pension funds.”

Williams, who isn’t a voting member of the Fed’s interest-rate setting committee this year, has stuck to the Fed party line of calling for three rate hikes this year despite core consumer prices rising just 1.9% in April, the slowest pace in 19 months, while the labor force participation rate remains near multidecade lows.

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Moe Hamhead's picture

Did he say "kill", ...The Russians did it!

jcaz's picture

OR.... It's being given the criminal latitude to fudge all Government data that doesn't affirm the Holy Fed's view on how they want to shape their bullshit......

Gee- which is more likely?  I just love when they talk about CPI like it's a real number.......

SafelyGraze's picture

the other major deflatorizer is the increasing speed of the cpu

https://www.karlrupp.net/wp-content/uploads/2015/06/40-years-processor-t...

calculations that took 30 seconds in 2008 now take only 30 seconds

amazing

 

ejmoosa's picture

They really think the Internet has permitted Central Banks to print all the paper money they can imagine and we will never have inflation?

The Internet did not destroy inflation.  Cheap ass ingredients and shrinkflation have ruled the day so far.  

But not forever.

Tarzan's picture

It's companies like Uber, Amazon, Airbnb, who are helping to slow the unrealistic goals of the Fiat monkeys.  They cut out the fat, the middle men who inflate for inflation's sake.  It is Fiat that requires constant inflation, not the economy.  Deflation is only a nasty word in the topsy-turvy world of a fiat dominated economy. 

 

It is not your well being they worry about, it's their fiat enabled slush funds, black budgets, and influence peddling machines they're worried about.  Without fiat, they can't live off our labor.  The money changers too will have to produce, rather then suck from everyone else' production, when fiat dies.


fattail's picture

Debt, deleveraging, and demographics also add to it.  

Nobody For President's picture

Graze, you wrote

calculations that took 30 seconds in 2008 now take only 30 seconds

amazing

 

Can you run that by me again? It's only 9 o'clock, and I haven't had that much to drink yet.

TheEndIsNear's picture

Intel giveth and Microsoft taketh away.

t0mmyBerg's picture

The internet might have played a small role in suppressing inflation but I am pretty sure the lions share of the deflation impulse was china and outsourcing with a touch of demography thrown in

limit_less's picture

Another article here

DOES TECHNOLOGY & THE INTERNET MAKE INFLATION IMPOSSIBLE?

DOES TECHNOLOGY & THE INTERNET MAKE INFLATION IMPOSSIBLE?

 

DOES TECHNOLOGY & THE INTERNET MAKE INFLATION IMPOSSIBLE?
0valueleft's picture

Audit these assholes!

nmewn's picture

Amazon killed inflation...lol.

max2205's picture

Brainless tools 

GRDguy's picture

Banksters lie and steal, then try to put the blame on others.

Typical sociopathic behavior.

Juggernaut x2's picture

No inflation in real estate- nope

Osmium's picture

Or property taxes.  Son Of A Bitch, these fkrs are killing me.

Yen Cross's picture

  You[the author] must be long AMZN?  The internet killed bricks and mortar retail.

swmnguy's picture

Um, yeah.  It was the Internet.  Not the lack of actual demand, which encouraged ever more cuts in labor and wage costs, which reinforced a deflationary spiral, which led to the conditions that allowed apps masquerading as actual businesses to overtake the real businesses by outsourcing expenses to the employees and customers.

Sure, they used the internet.  But this analysis confuses effect for cause.  As is so often the case for people who are desperately trying not to understand what's going on right in front of them.

Moe Hamhead's picture

I went to the hardware store to buy a couple of nuts & bolts to fix something around the house.  the little boxes where you can buy washers one at a time had a price of $0.14 for a single 3/8" flat steel washer.  I was stunned at the price they ask for that crap.  Inflation! 

Ha!  I reached in the cupboard for a can of Campbell's soup, and next to it was a can from a year ago.  Same height; but they looked a little different.  The old one was 26 oz.  the new one was 22.6 oz.  Notice the clever way they inserted an extra "2" in the description.

Solio's picture

We keep a magnifying glass on a teather in the pantry so we can even find the cans of soup! And, don't even mention the tomato paste!

Flair1239's picture

I love the part about Uber or AirBNB. I mean how many consumers as a percentage do they really benefit?

This is a case of Urban elites assuming that everyone shares a common set of experiences with them. The people I know, may not know what AirBnB is, and they think Uber is just really weird.

Sorry, but these two companies have not Destroyed the concept of inflation.

Now Amazon on the other hand I can see. But I am not
Buying necessities and toiletries off of Amazon. I am buying interesting shit, that I may not otherwise buy. But it is recreational income that I spend, not my living expenses.

Bunga Bunga's picture

Sorry, the internet doesn't help me at all. Home prices are sky high, health insurance goes up every year 20%.

rejected's picture

Everytime we go shopping the prices inch up. If that's not inflation, someone tell me what it is.

hoist the bs flag's picture

  they don't count what you want to eat, they count what you can eat. 4 words: hedonic ramen noodle index

Ramen and shite food prices have stayed relative and flat in regards to fiat notes being saturated and absorbed by TBTF ( aside from some stealth inflation) ... since the bombing of the economy in 2008.  the hedonic ramen noodle index is the best trendline to watch. since it's the only true measurement used by the poor, next to the toilet paper index.

 

when yakisoba and top ramen breaks $1.50 a pack..shit already hit the fan.

East Indian's picture

We are in a deflationary phase; to keep up appearances a whole gazillion tons of dollars have been printed (or concocted) and given to the banksters, who have given it to their sweethearts, who have used it to buy out everything in the financial markets within eyesight; so the top 0.01% has now more liquid money than the bottom 99.99%.

Sooner or later someone from the 0.01% will panic and use the thin-air money to buy real world assets from 99.99% (shares and bonds are sold mostly within the 0.01% nowadays, incuding pension fund managers). That will start a phase of sudden hyperinflation. Someone will try to control it through "futures" contracts, but it will fail. 

End of fiat. Fiat will still be around as a yardstick to measure the work ("unit of account") for some more time. By then another money will have risen - may be a gold-backed money, may be a blockchain "currency", may be barter. But even the most vociferous supporter of fiat will treat it like a toilet roll - hold it in your hands for as little time as possible. 

Promissory notes are not fit to be used as money. They are, after all, mere promises. 

mary mary's picture

More expensive: milk, bread, building materials, electricity, telephone, taxes, medical care, cars, insurance. 

Less expensive: can't think of anything.

"We are in a deflationary phase..."?

TPTB always lie.

Offthebeach's picture

Less expensive are the things you don't buy anymore thus the price is zero.  Thus it evens out.(  Fedthink/off )

Ignorance is bliss's picture

Just came back from COSTCO. I think I found the missing inflation. WTF..

If this keeps up I may need food stamps.

illuminatus's picture

What is slowing  down inflation is outsourcing, which makes jobs scarce, so people are competing for fewer jobs that pay less. Then there are the meager cost of living increases because the government figures claiming the inflation rate is close to zero are so massaged. 

Crawdaddy's picture

Inflation is what we say it is. And the the sheeple rejoice.

khakuda's picture

Monetary policy could not be more off the mark.  These old fart economists are beholden to obsolete theories of a closed manufacturing economy of days past that makes widgets.

In today's modern economy, characterized by global labor pools and technology (robots, internet, etc), consumer prices are disinflationary and innovation is rampant.  Until a robot can cut my hair, service price inflation is where the inflation is (healthcare, college, the barbershop, the auto mechanic).  It is why people throw away cars and appliances rather than fix them.  Labor costs to repair stuff are high relative to just buying new stuff.

The primary effect of monetary policy in this world is in influencing asset prices and until bubble making central bankers wake up, we are fucked.

By being solely inflation focused to the exclusion of most else, using biased measure at that, these central bankers are guaranteed to blow up massive asset bubbles which are disruptive and cause MASSIVE capital misallcation in the real world.

They are just too committed to their textbooks to have figured it out.

Central bankers can sit around ensuring everyone there are no bubbles.  If you look back in history, THAT is how you know there are bubbles.  The fact that they have to constantly deny them, tells you that they exist.

thisguyoverhere's picture

Article is about inflation and statement is patently false.

Healthy Food
Appliances
Vehicles
Education
Modes of production (tools and equipment costs)

And so much more have skyrocketed

khakuda's picture

Vehicles and appliances are actually cheaper than ever. Adjust the price of a Toyota Camry from 25 years ago to now for inflation and you will see that the price is only modestly higher than it was in the past. However, the car you are getting is dramatically better in terms of quality and safety features. Airfares adjusted for inflation are incredibly cheap versus 25 years ago. Clothing is cheaper on an absolute basis and super cheap if you adjust for inflation.  You can't make blanket statements about things. Some things are dramatically more expensive and somethings are much cheaper. Do you remember how much tube television is our PCs used to cost? You get much better value today. It is things that could not be exported to be produced in China, like a college education, or things that could not be automated and replaced with technology that have skyrocketed in price.

gold rubeberg's picture

Agree. The Internet is a real phenomenon, not a monetary one. And before we rush to say it killed anything I want to see a body. Inflation is far too active to be declared dead.

Flair1239's picture

They always claim an irreversible cultural shift that has shifted the supply or demand curve. It is like the time they kept
Talking about the "end of the business cycle".

But I suppose that 9 years is enough time for young aggressive players to repeat the mistakes of the previous wave of
Geniuses. They always say the same thing, that there had been a transformational change... then they go broke and start jumping off buildings.

hoist the bs flag's picture

no jumping...just nailgun suicides

user2011's picture

Internet also killed local stores. Post offices, Newspapers, Magazines.

Schmuck Raker's picture

Thank You Al Gore!

ILikeBoats's picture

Internet and computers in general, enabled massive productivity gains - which the EVIL, CORRUPT Federal Reserve then stole from the American people via their bankster cartel, fraudulent money system.

lucyvp's picture

what a bunch of b.s.

Everything that a person really needs, food, clothing, shelter, medicine, transportation, education up big.  What is down is imported small items.  Packed with features of course so the bls can hedonisize the heck out of them but they dont' last.  My parents appliances lasted 20, 30 years.  Nothing I buy will last that long.  Clothing might be down but it doesn't last like it used to. 

HoyeruNew's picture

Huh? But ZH had an article last week that clearly showed inflation in USA is running at 25%.

ZH, at least try getting your narrative straight: is there inflation or isn't there?

Or are articled just being posted here just for the sake of clickbait? Otherwise you are just outing yourseves as the BSers you REALLY are. I run AdBlocker anyway....

TheEndIsNear's picture

Tyler assumes that we readers of ZH have minds of our own with which to think and make judgements and decisions of our own based upon a variety of articles and various viewpoints.

If you want to be told what to think, watch CNN.

moneybots's picture

"The Internet Helped Kill Inflation In America, Says Credit Suisse"

 

So did the 99 cent store.

 

If one looks at the FED rate, it peaked in the early 1980's, before there was an internet. Since then, it worked its way down to ZIRP. We would be here, internet or no internet. Inflation and deflation complete a cycle, just as a boom and a bust complete a cycle.

China becoming producer to the world, was deflationary. Mal investment, resulting in overcapacity, was deflationary. The internet went along for the ride.

Muppet's picture

Make no mistake, the CBs can and will unleash massive inflation to deflate their balance sheets and Government debts.   Its only a matter of when. 

The CBs have backed themselves into a corner by their reckless and extreme money-printing and asset purchases.   That piper must be paid.  Its gotten so out of hand... one misstep and they'll destroy human livelihood or destroy themselves... and the latter will not happen.

gold rubeberg's picture

And let's not forget their interest rate manipulation. Price fixing in the credit market is no more acceptable than anywhere else.

JailBanksters's picture

Without using the word "Bank", explain why we need Inflation, more specifically why we need Inflation at exactly 2.5% ?

 

TheSilentMajority's picture

What a dick.

Tell that bs to anyone trying to cope with the meteoric rise in housing costs, healthcare costs, and education costs.

Last of the Middle Class's picture

Once again one and one ends up being 6 or 7 with these guys. Amazon's pricing, which is a result of e-commerce monopolistic schemes by the truly wealthy have absolutely nothing what so ever to do with inflation, which is a result of the constant dilution of value of each and every dollar Americans own and spend from TARP,
QE, Plunge protection over the last 8 years. The stock market now is so high, it is a direct indicator of flyover America's misery. The higher it goes, the worse America's financial situation is because it is the sole result of government (and Fed) policy to protect only a privileged few. It would take a complete dumbass to confuse the two.