Wednesday, September 26, 2007

CPI vs. Business Cycles

This chart shows the average CPI growth during each economic expansion and contraction. The shaded areas represent recessions (contractions).

As can be seen in the chart, it isn't always deflationary within a business contraction. The 1970s and our last consumer recession (early 1990s) show it is possible to have an inflationary contraction.

Since it is my opinion that we are playing the deflationary forces of a Great Depression off against the inflationary forces of the 1970s, it is very unclear what will happen should we slip into a recession. Ben Bernanke assures us that deflation won't happen here. There's a decent chance he might be right.

I see nothing in this chart that makes me want to change my long-term stagflation outlook and continue to believe we are not on a sustainable path.

Source Data:
Consumer Price Indexes (CPI)
National Bureau of Economic Research, Inc.


Anonymous said...

I've myself been meaning to getting around to making a graph as described here (against inflation volatility)

Perhaps you could beat me to it :)

Stagflationary Mark said...


Hahaha! I often read the conclusion first then go back and read the details.

And in case anyone thinks the eurozone is a safe haven, remember that oil is priced in U.S. dollars. So, while oil prices may have tripled in the U.S. since early 1999, the drop in the euro has made them quadruple in the eurozone, making the Katona effect that much worse in Europe.

I thought I'd entered bizarro world! It took me a minute to realize the article was written in 2000, lol. :)

This view was based on what he had learned from his consumer surveys: When consumers encountered an unexpected jump in prices, consumption fell and savings increased.

I do have a few charts based on that premise you may have missed.

I think I need a new label to make these easier to find. I'll add "volatility" shortly.

Anonymous said...

Here's one for you Mark

China no longer exporting deflation / Rising prices expected to pose inflationary danger for Japan, world economy

Rising labor costs are another factor that contributed to commodity price rises.

Average labor costs in 2006 were 21,001 yuan (2,797 dollars) per worker per year, an increase of 14.4 percent from the previous year. As a result of the rising incomes, the country's index of personal spending increased 15.4 percent in the first half of this year from the same period a year ago.

In other words, strong demand is stoking the rise in consumer prices.

There are already indications that the economic climate in China may be affecting the Japanese economy.

A Beijing trading firm specializing in clothes raised the prices of its exports in July. Prices of work uniforms for the Japanese market were raised from 6.50 dollars to 7 dollars a piece.

According to calculations by Nomura Securities Co.'s Financial and Economic Research Center, export prices from China to Japan rose an average of 9.8 percent in May from the same month a year ago. Prices of food and livestock feed jumped 19 percent, while those of general machinery went up 11.8 percent.

Takahide Kiuchi, a senior economist at the center, said things have completely changed from the time when Chinese exports were putting deflationary pressures on the rest of the world.


Stagflationary Mark said...


I'm definitely in "china inflation" Google search mode these days. Not good.

Wal-Mart recently changed its motto.

Anonymous said...

Subprime fears and rising food prices have sapped the confidence of Germany’s economy.

The barometer of German household confidence has dropped twice in as many months.

An inclination to save has also risen noticeably in economic surveys.

Other factors in the German lack of consumer confidence were debates about the euro's current strength against the dollar and its potential effect on the German economy; soaring oil prices and the likely effects on heating bills; and the chances of an overall economic slump in the United States, a major market for German exporters
This getting butt ugly.

Stagflationary Mark said...

Can't very well have people start saving. My earlier thought experiment ended quite tragically (a million years from now) if so much as a penny was saved.

At the very least, each penny we save should be offset by one penny that our grandchildren must cough up.

We all must make sacrifices of our grandchildren to get through this unscathed.

Of course, perhaps I'm just being greedy (in addition to being sarcastic). I don't even have kids.