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Chart from Tim Duy

I've been on a bit of an inflation kick this week, largely because there just isn't any in the economic system as a whole right now. We are seeing isolated areas of it in some countries (India and Brazil), but that's it. Overall, prices are very much contained.

Why? Let's look at a few underlying reasons.

1.) China's growth slowdown. I realize that saying China's growth is slowing down is a bit of a misnomer, as their GDP growth is moving from ~10% to ~7%. But for an economy that has been experiencing massive growth for a number of years (in the 10%+ range), this is a big move. The slower growth means the consumption of raw materials from China just won't be there at the same pace as before. Also remember that China wants to change its economic growth composition from one of exports to internal consumer demand, which also lowers growth for raw materials.

2.) The growth of the U.S. oil market. I'll touch on this more next week, but the U.S.' development of shale oil as a viable method of extracting oil is keeping a lid on energy prices. This is keeping one of the most volatile areas of costs very much contained.

3.) Slow growth. The EU's ongoing recession is really the big story here. The second largest economic region in the world (behind the U.S.) is now in its sixth quarter of negative growth. That means lower demand, which means little upward price pressure. Also note that we're seeing slower growth in some larger Asian economies as well.

4.) Is the commodity bull market over? Commodities were the big investment category for the last 12 years as traders bet primarily on Chinese growth driving commodity demand. Is that story over? Who knows at this point. But, the question is certainly in play.

5.) Debt Deflation Dynamics: The U.S. has had a slow recovery because we're in the middle of a debt-deflation economy. However, we aren't the only economy to be experiencing this phenomena. Canada and South Korea also have consumer debt issues as do Spanish banks. There's just enough of this dynamic across the globe to make it a contributing factor to slow growth, which leads to depressed demand, which in turn lowers inflation.

Source: Why Aren't We Seeing Inflation?