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Infation or not


scorpioncapital
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"But even with the January increase, which was in line with economists' expectations, inflation for the 12 months ending in January was zero. That's the lowest reading since prices actually fell by 0.4 percent for a 12-month period ending in August 1955.

 

Core inflation, which excludes energy and food, showed a modest increase of 0.2 percent, slightly higher than the 0.1 percent gain economists expected. Over the past 12 months, core inflation rose 1.7 percent, the lowest reading since a similar increase for the 12 months ending in August 2004

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Does anyone understand this? Is the inflation rate 0% for the last 12 months or 1.7%?

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I understand there is too much debt which created too many retailers, too many car manufacturers, too many houses, too many banks and too many investment banks and provided the illusion of a strong fundamental economy from 2003-2007 when the underlying US economy was weak.  This is reversing and the weakness has spread globally and unless we get major protectionism or a sharp currency decline, it will be very hard for inflation to take hold for some time.

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The only way for inflation to increase is that if spending increases relative to other more savings based currencies such as the yen or yuan and/or if the only way to increase the provide money to pay for deficit spending is via inflation.  One black swan scenario is China becomes unstable as unemployment increases, China needs its foreign reserves to cover its own problems and reduces purchase of US debt.  This would increase the cost of borrowing for the US or the US could inflate its way out of its spending commitments.  Also eventually the Keynesian spending now occurring may end up in stagflation but that is years away.

 

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