No Inflation in Sight

I like to send inflation bulls articles demonstrating that we are in a deflationary spiral. Case in point, WSJ article Wal-Mart Sharpens Its Pricing Pincers.

It says, "Wal-Mart (WMT) appears ready for an offensive that could hobble rivals' hopes for a sharp profit rebound. [...] Wal-Mart Chief Executive Mike Duke told [the WSJ] he expects gross margins to be more stable. That could mean the company will cut prices faster and put more cheap products on its shelves."

The article also notes, "J.P. Morgan's Charles Grom says prices of identical baskets of 31 products have fallen 14.4% between January and September at Kroger (KR), while Safeway (SWY) has seen a 9.7% decline. Wal-Mart, meanwhile, has only lowered prices by 2.6%."

Wow! No inflation at all!

Note that sentiment heavily favors inflation. "Though the widely watched consumer-price index was down 1.5% in the 12 months through August, in blogs, newsletters, online chat rooms and elsewhere, institutional investors, economists and others are wringing their hands. They're warning that the vats of stimulus money and credit that governments are pouring into economies world-wide will, at some point, result in rising prices for goods and services."

The contrarian play is deflation. Here is a chart of capacity utilization in the U.S. How do you expect to have pricing power when there is a glut of capacity? When these industries have been scrapped and shipped to China, and we are on stimulus VII, then I can see inflation.

Comments

[writejesse:]

there are more signs of inflation than you may think. Just for starters:
-emerging markets (especially India)
-steel
-used cars
-tap water
-DRAM chips

See inflationwatch.wordpre... for posts on the above items.

In addition, college tuition and health insurance premiums are rising, as always. And low-end home prices seem to be stabilizing or even rising in some markets.

Deflation was the story in 2009 but that doesn't mean it will be the story forever.

Oct 06 07:51 AM

[Gedankonomist:]

There is one BIG problem with this article. Inflation is NOT rising prices. It is an INCREASE IN THE MONEY SUPPLY. (And the money supply has been increasing since 1913.)

If you really got your money's worth from the college you went to, you'd know this one simple fact.

Oct 06 11:40 AM

[sod:]

You have overlooked the cheapening of the dollar, which will make imports more expensive and eventually reflect in higher prices for domestic products, such as food, which will become more desirable as an export commodity. You just cannot print money and increase the deficit without inflationary consequences. The first law of physics: there is no free lunch.

Oct 06 12:26 PM

[Tony Daltorio:]

The author is wrong on two points.

First, as with all deflationists, he ignores the most dangerous type of inflation - asset inflation! The Fed flooding the financial system with money has led to bubble-like valuations for both stocks and Treasuries. When this latest bubble bursts, it will be mean even more pain for Americans.

Second, the contrary play is NOT deflation - it is inflation. ALL of Wall Street has bet heavily on deflation - that is why interest rates on Treasuries are so low.

Oct 06 05:42 PM