Central Banks Stumped As Global Inflation Hits Lowest Level Since 2009 - Here's Why

Authored by Mike Shedlock via MishTalk.com,

Yesterday, I commented on “transitory” factors holding down inflation.

Today, the Wall Street Journal reports Global Inflation Hits Lowest Level Since 2009.

The Organization for Economic Cooperation and Development said Thursday that consumer prices across the G-20—the countries that account for most of the world’s economic activity—were 2% higher than a year earlier. The last time inflation was lower was in October 2009, when it stood at 1.7%, as the world started to emerge from the sharp economic downturn that followed the global financial crisis.


The contrast between then and now highlights the mystery facing central bankers in developed economies as they attempt to raise inflation to their targets, which they have persistently undershot in recent years.


According to central bankers, inflation is generated by the gap between the demand for goods and services and the economy’s ability to supply them. As the economy grows and demand strengthens, that output gap should narrow and prices should rise.


Right now, the reverse appears to be happening. Across the G-20, economic growth firmed in the final three months of 2016 and stayed at that faster pace in the first three months of 2017.


Growth figures for the second quarter are incomplete, but those available for the U.S., the eurozone and China don’t point to a slowdown. Indeed, Capital Economics estimates that on an annualized basis, global economic growth picked up to 3.7% in the three months to June from 3.2% in the first quarter.


Central bankers in developed economies are puzzled by the sluggish pace of pay rises, given continuing declines in jobless rates. However, they believe that economic growth will ultimately eliminate the gap between what their economies can produce and what they are now producing, supporting wages and prices.

No Puzzle

Central banks are puzzled because they do not know what inflation is, or how to measure it.

For example, instead of using home prices in the CPI, they now use Owners’ Equivalent Rent.

In general, asset prices do not count. Bubbles in stocks and bonds do not count.

The massive global QE liquidity went someone, as money always does. The liquidity did not go where the central bankers wanted. It went into asset bubbles.

Mystery Solved

It’s no mystery why central bankers are mystified: Collectively, they are economically illiterate fools engaged in Keynesian and Monetarist group think.

On deck is another round of destructive asset price deflation, brought about by Central banks who cannot see the obvious.



Gods Fri, 08/04/2017 - 08:25 Permalink

My food has price doubled in the last 10 years. My rent has doubled in the last 10 years. My insurance has almost doubled. My wages have remained the same since 2000.

eclectic syncretist hoist the bs flag Fri, 08/04/2017 - 09:12 Permalink

"Central Banks Stumped As Global Inflation Hits Lowest Level Since 2009"The Federal Reserve's mandate is to ensure price stability, meaning no inflation or deflation. Obviously, having enacted policies that have resulted in the dollar being devalued over 20-fold since its inception in 1913, the Federal Reserve has been a massive failure by their own benchmark, and should be shuttered based on this fact alone.Of course, everyone knows that even from the beginning the true ulterior motive behind the Central Banks has always been to counterfiat money in order to selectively enrich a few at the cost of the many, with inflation simply happening as a direct result of all their counterfiat printing. The Fed is lying to us this time by telling us that there is no inflation, because they intend to raise interest rates and ramp up the counterfiat printing presses so that they can enrich themselves with more free money and interest payments from the rest of us. They will do this because even now the banksters feel they don't have enough already, and fail to recognize that all the wealth in the world could never fill their surfeit souls, which is the real problem. When they convince themselves they own the entire earth they'll lust for the moon, and then the stars, and the air, and no matter how much they control and strip of essential spirit and kill, they will die sad and unfullfilled. Such is the curse of the bankster.

In reply to by hoist the bs flag

The Wizard Gods Fri, 08/04/2017 - 08:35 Permalink

I would guess food more than doubling over the last 10 years. Might it be the statistical analysis methodology is screwed up and the guys visiting the grocery stores haven't noticed the shrinkage of packaging. It is a joke. Hell, discouraged workers are not included in the unemployment statistics. How stupid is that stat?

In reply to by Gods

TheSilentMajority Fri, 08/04/2017 - 08:35 Permalink

The real CPI has averaged between 7%-12% annualized for more than 20+ years.

The clueless peon sheep would amass with their pitchforks if the central bankers ever published the real inflation rate.

Albertarocks small axe Fri, 08/04/2017 - 08:51 Permalink

Exactly right.  There is no mystery, except to bankers who are pretending to be stumped.  They know damned well why there's no inflation... and it's exactly for the reason you point out.  The magic of fractional reserve banking has not been allowed to play out, and it won't as long as the bank pigs keep withholding all that play money for themselves for use in the stock markets.  Once they start lending it into the economy for the benefit of any business in the USA that want's to expand and start growing the country again... the usual inflation due to fractional reserve banking "is not happening".  Any banker who is truly "stumped" by this fact would be better suited to a job at Taco Bell... taking the garbage out.

In reply to by small axe

Dilluminati Albertarocks Fri, 08/04/2017 - 16:19 Permalink

Actually the banks rotated the deflation upon the consumer in bank returns for savings and retirees.  Been at it, hard at work at it now for oh about 9 years.  This is why additionally no wage growth, again ROTATED DEFLATION as a market cycle onto consumers, but.. remember this.. there gets to be a point where too many debts chase too few dollars, and irrespective of if that is retail sales or autos, the banks who own effectively everything can forestall that correction, but never avoid it.So long animal spirits, go buy the dip.. but when you have to run for cover the next cycle, there isn't safe places to run as the large dollars buy those hiding spaces or so many initial dolllars force the sale.  I'll laugh when people are trying to buy safety in the 30 and receiving less than what you could have gotten in March of this year brokered CD Dis, non-callable, FDIC insured.  If the debt ceiling isn't risen.. that means not enough dollars to service debt.Deflation = too many debts chasing too few dollars, the narrative and bias of the gold bug misses stating it in that succinct of a sentence, but if you sold at the height of the property bubble, and waited for too many debts to chase too few houses, you could have in 2008 reinvested that money and bought 2x as much house, 2x as many units.  Arguing if deflation eroded 40 to 50% of bubble price does not equal cannonical inflation.  The prices might have been inflated temporarily, but as debt proves time and time again it is the final arbitrator on value. 

In reply to by Albertarocks

Ban KKiller Fri, 08/04/2017 - 08:53 Permalink

Accounting gimmicks, works right up to the moment...I'd say real inflation is six to nine percent...generally. Compared to savings rate of fifty basis points, yeah that makes sense.

Too-Big-to-Bail (not verified) Fri, 08/04/2017 - 08:53 Permalink

We're not taking any more of your debt -- we're already saturated. Before we could all consume more by adding debt, and once debt is saturated something has to give. Interest payments take up a higher share, so consumption on the things you want us to buy to give you your inflation is just not going to happen. Duh!

Dilluminati Fri, 08/04/2017 - 08:55 Permalink

We are in a debt deflation, I flogged that horse here repeatedly and yes I'm right.  https://keenomics.s3.amazonaws.com/debtdeflation_media/papers/keen_cce… It is non-linear which is to say that factually M3, M2, M1 is more akin to math in harmonics.  Many people confuse a growth term and a cycle term.The next downturn is going to be brutal.While many can turn their noses up at 2.83% semi-annual growth for a period of 10 years, if you have an IRA and the gains are tax exempt, they could also be:FDIC insured, which is to say if the bank breaks the buck, the instrument is additionally contract non-callable.  Those are TWO DIFFERENT THINGS!https://www.depositaccounts.com/blog/cd-rates-survey/Currently https://personal.vanguard.com/us/funds/bonds/bonddeskDiscover is selling the 2.65% at 10 yearYou will see the two in the above links.Risks Selling Before Maturity: If you need to sell a CD before its maturity date, the sale proceeds may be more or less than your initial investment.1Call Features: Some CDs may include a provision that allows the issuing bank to "call" or redeem the CD prior to maturity at a given price. FDIC Coverage Limits: CDs are insured up to the FDIC limit per depositor per institution. If the total amount you have in deposit obligations at a specific institution exceeds the insurance limit, your deposits may not be fully protected. Credit Risk: Since CDs are a debt instrument, there is a risk that the issuing institution will default. FDIC insurance helps mitigate that risk.In conclusion your IRA or self-directing 401K should investigate a brokered CD tax exempt if you have already accumulated wealth in your retirement account and north of 50 years of age, in effect TIMING the safe play of brokered CD through to retirement.Ohhh congratulations, you retired, you lost 40% of your IRA like what happened in Japan in 1989.I'll agree after tax what is 2.65% not freaking much, but now is those opportune times to sell high and lock in the gains with 10 years garunteed gains if your age makes this a valid scenario.But debt deflation is both represented as a growth term and cycle term.  It oscillates said simply.Next downturn is going to burn some baby boomers and.. and.. because it is deflation there will no bid on metals.. and crypto will vanish.Best of luck folks    

Dilluminati Bay of Pigs Fri, 08/04/2017 - 16:09 Permalink

People talked about housing inflation in 2008 it was a MARKET CYCLE of debt!  Dollars are a also a market and a cycle.  Just you wait until too many debts chase too few dollars, and we'll see if it's deflation?  Or Inflation?  The WTI is betting with me, so is professional market participants in metals.  Wishing doesn't make it so, just the facts.. I'm well placed/documented on my opinion, lets see how it plays out?   

In reply to by Bay of Pigs

gregga777 Fri, 08/04/2017 - 09:06 Permalink

As of May 2017, the number of working age Americans “not in the labor force” has reached a total of 94.98 million. When you add that total to the number of Americans that are “officially” unemployed (6.86 million), you get a grand total of 101.84 million. That makes almost 102,000,000 million unemployed working age Americans or ~40% unemployed.

But, the Intellectual Yet Idiot classes ruling MORON criminals, the Goldman Sachs Feral Reserve System and the US Bureau of Lying Statistics say that everything is great and that unemployment is down to just 4.3%. Hey, it’s full employment people! Whoopee! Party on!

They also claim that most of people excluded from the 'official' unemployment figure are 'discouraged' workers who don't want to work. So, tell me, where are there tens of millions of always unfilled job openings in the United States?


Too-Big-to-Bail (not verified) Fri, 08/04/2017 - 09:23 Permalink

And secondly, The central banksters are not dumb -- they are playing dumb -- big f*cking difference!

idontcare Fri, 08/04/2017 - 09:32 Permalink

No inflation?  Let's see. the last time the average person working a full time job could afford "the American Dream" of a home, a car, two kids, a dog, and a stay at home spouse was when?

khakuda Fri, 08/04/2017 - 10:06 Permalink

EXACTLY RIGHT.  And so obvious, too.  It was obvious when they started out on this experiment.Think about it.  If I see the government printing money and expect money will be worth less as a result (nflation), I will buy stocks to protect myself because they have typically been an inflation hedge.  Why?  Because I certainly can't buy a lifetime supply of turnips or gasoline or cars or cable tv or cell phone bills or heatlhcare upfront, can I.  Of course, the economists believe that I will rush out to buy stuff because I think the price is going up.  In their world, produce doesn't go bad and I have unlimited storage capacity in my home to buy ahead of need.  Well, I don't.  But, I can buy the stocks in the makers of those items if I think they will benefit from inflation and that will push up the prices of financial assets.Financial market inflation has been runaway inflation.  Prices have oupaced underlying earnings for most of the past decade.  My sister just complained that a house she almost bought 6 months ago was purchased by someone else and is not on the market at twice the price.Central bankers are incompetent hacks.

CRM114 khakuda Fri, 08/04/2017 - 10:26 Permalink

Actually, there a quite a few things you can buy a lot of, and a lot of them are very cheap right now because the rest of the public either can't afford them or don't realise the importanceQuality kitchenware - 25 year guarantee 11 pan set at only $205. Wusthof knife set (top quality, effectively lifetime), $400.Quality work clothes and bootsQuality gardening tools - grow your own food.etc.Solar panelsMetal roofinginsulating foam.All the above gets your bills down and thus further insulates you from inflation later (not to mention the tax increases that must come).So, whilst the list you give is true, there is much that can be done. 

In reply to by khakuda

Batman11 Fri, 08/04/2017 - 10:17 Permalink

1929, Japan 1989 and 2008 were all the same.A debt saturated economy with a debt fuelled asset price bubble.Richard Koo compares them and gives us some lessons we might lean.He explained why austerity didn’t work in Greece to the IMF.Ben Bernanke read his book and altered US policy, he leads those we follow.https://www.youtube.com/watch?v=8YTyJzmiHGkThe West turned Japanese in 2008.Central Bankers hopes for recovery need to adjust to Japanese timescales.27 years and it’s still stagnating.

Batman11 Batman11 Fri, 08/04/2017 - 10:26 Permalink

De-leveraging since 2008 has got the US into a similar position to that it was in before the Great Depression:https://cdn.opendemocracy.net/neweconomics/wp-content/uploads/sites/5/2017/04/Screen-Shot-2017-04-21-at-13.52.41.pngThere is a way to go yet.The UK:https://cdn.opendemocracy.net/neweconomics/wp-content/uploads/sites/5/2017/04/Screen-Shot-2017-04-21-at-13.53.09.pngThere is a way to go yet.No one really knew what they were doing in the neo-liberal era and the whole thing was running on debt. Its economics didn’t look at private debt in the economy and so no one could see the problem as it was developing.We all have to live with the consequences.

In reply to by Batman11

MrBoompi Fri, 08/04/2017 - 10:29 Permalink

Even at 1.5% inflation, this is like a cancer that eats away at economic security for the 99.9%.  Most wage earners are getting further behind.  Retirees are even worse off.  It seems the Fed loves inflation, but not with wages.  On top of that, they purposely under-measure price inflation to get to the absurdly low 1.5-2.0%.  A stronger dollar purchases more and is better for consumers.  Cheaper prices, price deflation, is also better for consumers.  Higher relative wages are better for consumers.  So it follows logically the Fed is against anything that helps consumers.  As if we didn't already know that.