Has John Williams' Hyperinflation Thesis Been Delayed As Core CPI Comes In Flat?

Recently, an extended analysis by Shadow Stats' John Williams evaluated the risk of a hyperinflationary episode as one which has the potential to come as soon as next year. Somewhat in support of this theory yesterday's read of PPI came in above consensus, indicating that inflation may indeed be coming. Yet today's CPI data, whose core read came in at 0.0%, may have just poured a whole lot of cold water over Williams' thesis. Nonetheless, at the end of the day Williams may be right: the question remains - if and when the excess reserves start hitting the broader currency (as the Fed is scared shitless to withdraw liquidity on its own), we may experience a transition from deflation to inflation so rapid, that is has no historic analog. At the end of the day deflation will likely be the name of the game for quite some time, until such point as "Man of the Year" Bernanke finally flips (the turbo print switch on), and any pretence of prudent monetary policy is thrown out of the window. At that point, look for the stock market to promptly go to 36,000 followed by an even faster drop to 0, all the while the dollar gets hyperdeflated (Zimbabwe redux). With the Administration set on not losing the midterm elections by a landslide, don't expect much in terms of economic experimentation at least until 2011. At that point, all bets will be off as the Fed will likely have at most 2 more years of shelf life before both its, and thus Wall Street's, life support are forcefully yanked out. 

As for today's CPI, David Rosenberg does a great job of defending the deflation thesis:

While the headline consumer price index (CPI) for the U.S. came in at +0.4% MoM in November, the big news was it was all energy (+4.1% MoM) and that the core (excluding food and energy) and excluding energy segments of the CPI came in at zero. How do you spell F-L-A-T?

Consider that we have a massive $2.3 trillion Fed balance sheet, near zero rates, the weakening in the U.S. dollar this year, all the massive fiscal stimulus, and the best we can do on the inflation front is ZERO on the core and a three-month trend of 1.5% at an annual rate? There are still too many pockets of deflation to be bearish on the fixed-income market:

  • Apparel prices down 0.3% MoM in November
  • Recreation down 0.2%
  • Rents down 0.1%
  • Household furnishings down 0.3%
  • Hotels rates down 1.5%
  • Grocery stores and restaurants 0%, drugs 0% too
  • Communications -0.3%
  • Computers -0.2%

It’s a good thing we have health services (+0.4%) and education (+0.2%) because without these two non-cyclical sectors, the core CPI would be in deflation right now.