Guest Post: The End Of Swiss And Japanese Deflation

Tyler Durden's picture

Submitted by George Dorgan from

The End of Swiss and Japanese Deflation

Japan and Switzerland among the highest in Year to Date CPI for developed economies: a quite surprising result for current deflation fears

Again some economists (my former colleague Mansoor Mohi-uddin of UBS in the Financial TimesSoberlook or even the IMF) uttered the idea that Switzerland and Japan see deflationary risks and that its central banks need to do something against it, via Quantitative Easing (the IMF) or even by an articial exchange rate peg. These economists are often able to compare only the Year on Year headline figures, which contain exchange rate effects: For example, a rising Swiss franc in 2011 and a resulting YoY deflation in imported products. The Month on Month data show that there is no big difference between Switzerland, Japan and other developed economies:

(Sources: Swiss Statistics, German destatis, US BLS, Norway Statistics,  Sweden Statistics, Australia BoSJapan Statistics  and these Japanese data, year to date computed by compounding of MoM values, June US and Japan estimated)

Neither Switzerland nor Japan are in deflation. Swiss YoY CPI is still in deflation, because the effects of the strong franc in 2011 are still to be washed out. Japan shows already YoY inflation.

Japan has the highest Year to Date Inflation (since end December) partially thanks to the higher USD/JPY exchange rate. If we measured the Year to Date CPI since End January, Switzerland would be close to the leaders. Most surprisingly Australia is on the bottom of the list (Q2 inflation data still missing) and some short-sighted investors piled into the Australian Dollar as supposed safe-haven.

Many (here the protagonist) are claiming that the whole world is going into deflation, for us things look very different: The historically most important inflation driver, the nominal wages, are still on the rise:

(Sources: Swiss StatisticsGerman destatisUS BLSNorway Statistics,  Sweden StatisticsAustralia BoSJapan Statistics/only contractual change, most data from Q1/2012)

Australian and Norwegian wages will probably calm down with falling inflation expectations and less demand for commodities. US salary rises are hindered by the strong unemployment, German wage increase might slow with the euro crisis. This means that Japan and Switzerland will further cope up with other countries in the CPI provided that their currency does not appreciate.

Nearly full employment in all the cited developed economies except the US shows that the deflationary environment of the recent months is only temporary. Deflation is rather an effect of the recent strong fall in commodity prices. No wonder that the Fed is still reluctant to ease conditions; they saw the opposite temporary commodity price movements last year.

We do neither expect a global inflation nor a deflation scenario but a balance sheet recession in many countries but still an increase of wages and therefore a very slow global growth in both developed and developing countries and continuing disinflation (see chart of Ashraf Alaidi to the left). CPIs will look soon similar for all developed countries, with the consequence that the currencies of the most secure and effective countries (measured in terms of trade balance and current accounts) will appreciate. These are for us e.g. Japan, Switzerland, Singapore and partially Sweden and Norway. The overvalued currencies with weaker trade balances like the Kiwi and Aussie must depreciate.

As opposed to the Bank of Japan, that currently does not intervene in the currency market, the Swiss National Bank (SNB) is still artificially depressing its currency, despite a record low of 2.9% in the unemployment rate, a strong trade balance and a Swiss Q1 GDP growth 0.7% versus 0.0% in the euro zone.

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Occams Aftershave's picture

WMT the new market leader, bitchez !

stocktivity's picture

The news of thousands of potential lawsuits due to the libor scandal is barely known let alone priced into any of these markets.

Pinto Currency's picture


Goods price inflation (assuming that is what is meant by "inflation" in this article) is not caused by low unemployment.  It is caused by money creation. 

Short Memories's picture

I thought CPI, like employment etc was fudged anyway, so who cares?

How can you get upset about numbers you know are false? Its not the elephant in the room!


Dr. Engali's picture

That's because most people don't know what LIBOR is. Not to mention there will be a settlement and a slap on the wrist with no fault admitted. The lawyers will get filthy rich and everybody else impacted by the fraud will get a check for a buck.

Stock Tips Investment's picture

Generally, when there began a period of recession, also can see a deflationary process. But this is usually temporary, until the inventory down to its new equilibrium level. I think that's exactly what we are experiencing. The beginning of a new recession (a Dimesion yet unknown) with a fall in prices of raw materials and also in industrial prices.

kato's picture

define "deflation". in detail. vastly overused word in recent years. in most cases when the word is used, the fear-monger is referring to one asset class, in particular one that if it goes down is going to hurt a lot of banks.

sorry, this author does a pretty nice job, but it is a word that is thrown out there now by too many with an agenda or wanting to go on cnbc, etc. and act like they know what they are talking about.

SheepDog-One's picture

Deflation: 'A loss of confidence in a currency'.

Sure would be nice if eclownomists knew what the words mean that theyre throwing around.

TaxSlave's picture

"Deflation": When used by an economist or analyst, means that prices of things you do not or cannot own go down, while the prices of the things you need to survive zoom out of reach.

SheepDog-One's picture

Well theyre wrong then, because deflation/inflation has nothing to do with prices going up or down from any given point. If they want to talk about prices, then talk about prices.

Caviar Emptor's picture

Biflation , brothers and sisters! The unexpected bi-product of the 4 decade reckless monetary expansion and the corporate welfare state

TaxSlave's picture

Well theyre wrong then, because deflation/inflation has nothing to do with prices going up or down from any given point. If they want to talk about prices, then talk about prices.

Exactly so, but we're talking about the amplified voice of the man behind the curtain here, not reality.  Reality is that the 'value' of the money-printing speculators' 'assets' went down by about a Quadrillion overnight; to them, that is 'deflation', and their problem is that they can't print enough digits to erase those losses or the victims of the scam will wake up and refuse to play the game any more (being that the faked value is about ten times the net worth of every asset on the planet).  So they pretend the 'value' is still on the books, while they CTRL-P at a rate just shy of stampeding the herd.  WE will get inflation (devalued currency, meaning devalued time-value of our work), which to them is restoration of the 'assets' on their fake balance sheets.  Doesn't matter that it cannot work, will not work.  It gives everyone time to prepare for survival when the game is up, if they can afford to prepare.

john_connor's picture

Japanese equities are still falling even though Bank of Japan is buying.

swissaustrian's picture

Good article overall.

Should have mentioned the Swiss real estate bubble, though. That's where all the monetary inflation is going to right now: asset inflation.

Also, some circumstances for Switzerland and Japan couldn't be more diametriacally opposed:


debt/GDP: 40 vs 200+%

budget surplus vs. huge deficit

population growth vs shrinkage

This means to me: Inflationary pressures in Switzerland are going to be much more severe.


midgetrannyporn's picture

deflation means the uber-wealthy get a bailout. inflation means the rich get richer while the poor get poorer. A win-win. [/sarc]

crawldaddy's picture

umm no, both are bad.  ANd if inflation hits worldwide, all bets are off.  You can only hide from inflation if you have safe stable outside place to park your wealth.

Overfed's picture

"You can only hide from inflation if you have safe stable outside place to park your wealth."

Silver, gold.

Arnold Ziffel's picture

Japan will soon be pulled into conflict in the South China Sea and that will cure their deflation and distract the Hoi Poloi from the radiation:


US, China square off over South China Sea

pods's picture



Deflation is rather an effect of the recent strong fall in commodity prices.

I am really hesitant to try and use commonly accepted economic tools of analysis to describe where we are.

I wonder if the author has thought about the effects of the USA of deficit spending roughly 10% of GDP for the past 4 years?

Or the havoc that would ensue if that were removed and more debt imploded, taking the money supply down with it?

We are at a time in history where debt is collapsing like no other time, and he wants to look at the past few months, using myopic tools of analysis to pronounce that everything is not so bad?

Wonder if he ever saw the Black Knight skit?

"Tis but a flesh wound!"


MachoMan's picture

Whenever someone uses deflation or inflation in relation to prices of commodities rather than the money supply, then ignore them.  They're decreases in prices for fuck's sake...  prices may increase or decrease regardless of whether we have inflation or deflation...  this guy needs to write it about 20000 times on a chalkboard.

The other question is what effect does expansion or contraction of the money supply have when velocity is zero or thereabouts.  It seems to me that the expansion or contraction isn't particularly well distributed and ends up oozing through the cracks in random asset classes.  It also seems like regardles of whether we have inflation or deflation, debt laden asset classes (e.g. homes, cars, etc.) are still taking a big shit or treading water at best.  Apparently bubble blowing has limitations.  

GeezerGeek's picture

Regarding the part that said "Nearly full employment in all the cited developed economies except the US...":

I noticed that the developed economies cited did not include the UK, Ireland, Spain, Italy, France, etc. Isn't that like creating a list with Bill Gates, Warren Buffett and me and then saying "Everyone cited is quite well off except for the geezer guy"?

Pool Shark's picture



If the author is implying that we will be seeing traditional "wage-push" inflation; he's smoking dope...



pods's picture

I cannot understand how the author overlooks the gobs of liquidity running around the world rent seeking to come up with a straight faced analysis.

Between all the funny money either running to yield or from risk at lightning speed all around the world with central banks taking turns debasing to stay afloat it makes any analysis almost impossible.

If I were to piss in the ocean the volume would rise, but I am not going to go around telling people.


JimBowie1958's picture

Between all the funny money either running to yield or from risk at lightning speed all around the world with central banks taking turns debasing to stay afloat it makes any analysis almost impossible.

But if the banks who get that funny money horde it as collateral for derivative contracts and future economic uncertainty, wouldnt that pretty much cancel out any inflationary effects till they have more confidence?

Maybe the worst that can happen is for the glacial global economy to thaw out and release a sea of stored fiat?

MachoMan's picture

Exactly.  Wage inflation is only possible in the world's manufacturing centers (not the U.S.) due to wage arbitrage over decades (actually, in perpetuity, e.g. the U.S. was a colony not too long ago, but let's stay on topic).  In other words, if Charles Chinese gets wage increases, how does this create inflation in the developed world?  Especially considering marginal wage increases are probably going to either go to savings or spent on staple goods.  Isn't one of the necessary foundations of Ben's ability to print that the inflation will be seen outside the developed world?  What am I missing?

It's that whole pushing on a string thing...  pushing until you push enough to where you're pulling on it from the other side.  I literally can't see any scenario for demand pull inflation in the developed world...  It simply ignores virtually every aspect of our economy. 

Stoploss's picture

Morning humor. Nice..


So, George, if deflation is dead, then why aren't rates going up??

And, why no movement in the inflation guage, globally?

PulpCutter's picture

Total bullshit - even the National Enquirer would be too embarassed to publish this.

WHICH 'cited economies' have full employment?  Couldn't have been America, UK, any of the PIGS, anywhere in eastern Europe, anywhere in Arabia or Persia....

Inflation is coming?  IBM just sold 3yr corporate bonds for 0.75%, and 7yrs for a record-low rate.  Where's the inflation?Austrians have been screaming "hyperinflation right around the corner, within the next year!", for over a decade. 

Fit your theory to the facts, not the facts to your theory.  Even Mitt Romney could do better.

adr's picture

A small jar of peanut butter hitting $4.50.

Ground chuck averaging $4.99lb.

$4.79 for a 10oz box of Corn Flakes.

A Big Mac meal at McD going from $3.80 to $5.78.

Average price of tires going up 30%

A new compact car averages $18k now, $20k with good options. 2006 average was $15k.

Would you like more? Or has your pocketbook somehow got bigger to absorb all the inflation without noticing?

GeneMarchbanks's picture

That is just simply corporations passing their cost increases onto you, the dumbass, dependent, unassuming consumer. Sometimes it's not even that, they squeeze for no reason other than to pad their quarterly statements.

Pool Shark's picture



Okay, I'll play along:

Oil at $84/BBL when it was over $100/BBL just a few months ago...


Dr. Engali's picture

I don't know why you are getting junked. It must be by a bunch of people who don't go shopping. I do all the household shopping and I notice it month over month. The only thing deflating is asset prices.

AnAnonymous's picture

The problem is the other US citizen does not speak about household shopping.

And he is answered by another US citizen through household shopping inflation.

Thisson's picture

Just because consumer prices increase does not mean we have inflation.  Prices can increase during deflation.  Prices can decrease during inflation. 

The situation we have now is occuring (grocery prices increasing) because of government intervention, which is preventing bad debts from being marked to market (and destroying money/credit).  When this bad credit/money is destroyed, it will stop competing with your money to buy groceries (and everything else) and prices will likely decline.

deez nutz's picture

the masses in the US can just turn to using more credit cards and longer car loans.  You just can't depress a "super consuming" economy.  


Overfed's picture

I sure as hell notice the prices going up, too. Deflation my ass.

SheepDog-One's picture

Yea I agree, I have no idea what this guy is even talking about.

PulpCutter's picture

Should add that Japan has pumped a TON of govt spending into their economy, rebuilding from the earthquake and tsunami.  I would think any useful analysis of their economy, of late, would include this but if Dorgan included it he didn't think it was worth mentioning.  What's up with that?

adr's picture

You lost me at salary increases. Take the top 10% out of the calculation and there isn't any increase in the US. $50k jobs are now paying $32k if you are lucky. 75% of available jobs pay less than $25k a year, if I go by the advertised jobs I see.

crawldaddy's picture

exactly, median take home pay has GONE down in the US.  Here is the truth, if inflation hit in the US, and household income went up, before the bad effects of inflation take hold, the US economy would burst back to life, negating much of the bad effects.  Do you really think having median income go up 10%, home prices going up 10-25%, banks lending again,  people paying off debt, spending increasing would lead to terrible things?  Getting the middle and lower class paid is the only thing that could possibly save this country and economy.  SUre the fed would have to watch and make sure the now RED HOT economy doesnt go out of control inflation wise, but wouldnt that be a nice problem to have?


Its astonishes me how truly idiotic many are in economics. BUt then again, look around we have a world depression because of it.  Too many truly stupid people in positions they have business even being close to.

Greyzone's picture

Crock of crap article. If you don't understand what inflation actually is, and instead confuse inflation with increases in prices (which are a possible effect of inflation) then you write crap like the above article.

crawldaddy's picture

exactly, if this article were to be handed in as a university setting, its C- work.

Caviar Emptor's picture

Deflation? Sure. Real median household income will continue to spiral down. And then there's debt deflation

Inflation? Chortle....the things you really need will continue to spiral up : in 10 years, cost of gasoline up 150%, automobiles 70-80%, restaurant meals 80-90%

Jack Sheet's picture

Inflation is ludicrous.


Mish Shedlock

Rick Ackerman

Melin's picture

Here's the heroic Jim Sinclair on the inflation/deflation semantics:

crawldaddy's picture

Another piece of shit article.   Balance sheet recession? really?  Here in the real world we call it what it is. a WORLD DEPRESSION assholes.

kito's picture

no deflation.......... no inflation..........just implosion

goforgin's picture

Koo is a genius. Japan has always been the most socially and economically progressive nation.