Chart of the Day: No Inflation in the Developed World Despite QE

By Marc Chandler, Global Head of Currency Strategy, Brown Brothers Harriman

After several years of asset purchases by central banks, and in other ways, extremely easy monetary policy, general price levels have not shown the kind of inflation that many observers have feared. In fact, the opposite is a more potent force presently.

This Great Graphic, composed on Bloomberg shows Japanese (white), US, (yellow) and euro zone (green) inflation.


The BOJ is pursuing aggressive QE (so aggressive it is called QQE) to push inflation higher. Thus far, the increase in price pressures is a result of food and energy prices. The ECB surprised most observers with a 25 bp rate cut last week to address the disinflation, not to weaken the euro, we were told.

On Friday, the euro area will confirm the Oct inflation, likely in line with the preliminary 0.7% Japan’s Sept national CPI was 1.1% and the US Sept CPI was 1.2%. The BOJ is most adamant about pushing inflation higher. US inflation is nearly as low as Japan’s, but many expect the Fed to begin tapering as early as next month.

The euro area has the lowest inflation of the three and the 25 bp rate cut is unlikely to have much impact on arresting the disinflationary forces. The exchange rate is one channel that monetary policy can be transmitted and coming into today’s session, on a trade-weighted basis, the euro was almost 1% firmer than it was last Thursday after the ECB delivered the rate cut.


Got a comment or question about this post? Feel free to use the Ask Cullen section, leave a comment in the forum or send me a message on Twitter.
Marc Chandler

Marc Chandler

Marc Chandler has been covering the global capital markets in one fashion or another for nearly 25 years, working at economic consulting firms and global investment banks. Chandler attended North Central College for undergraduate. He holds masters degrees from Northern Illinois University and University of Pittsburgh in American History and International Political Economy. Currently Chandler teaches at New York University Center for Global Affairss, where he is an associate professor.

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  • Benjamin Cole

    Monetary policy is not “easy” or “loose” or accommodative” if inflation hits postwar lows…rather the Fed has been feeble, uncertain and confused in its policies since 2007…
    Ask yourself this: if inflation was above 8 percdnt, would you call monetary policy easy? When inflation is trending south of 1 percent?

  • Suvy

    We’ve avoided deflation though. We must avoid deflation at all costs.

  • PeterP

    This sounds like Sumner’s nonsense. His model failed, the Fed did what he prescribed and yet no inflation. It means the policies Sumner and others think are “easy” are not, they use the wrong model. And we know why it is wrong, they ascribe properties to banks and the monetary system that they do not possess while at the same time saying they are “not interested in understanding or modeling banks”. No wonder then they get confused and utter excuses like “the BoJ wanted low inflation and low growth”, which are unsupported by anything.

  • Suvy

    I’m sorry, but I don’t think you understand Sumner’s model. I’m not Sumner’s biggest fan, but it’s not fair to set up a strawman to attack. The US and UK have avoided deflation while Japan ended deflation in 6 months with monetary policy. We have a $16 trillion dollar economy with almost $60 trillion in total assets, so creating $1 trillion a year to buy assets won’t create very much price inflation when there’s no private sector money creation.

  • socal

    my gut says trying to “control” deflation is about as likely as us being able to stop a hurricane or earthquake. just like when depressed people take depressants and find that eventually, they haven’t actually solved the real problem– they’re still lonely.

  • PeterP

    How do you know Japan ended deflation with monetary policy not fiscal policy? CR showed here that the Fed does not overpay for assets, so there is not much price inflation from sapping these assets. I guess BoJ also is unable to pay for assets whatever it wants, this would be back door fiscal policy.

  • Suvy

    Japanese fiscal policy hasn’t changed for 25 years. They’re doing the exact same thing they’ve been doing and I actually think their government debt is dragging their growth downward. Japan’s been running large deficits and the Yen has continued to strengthen. Then the BOJ begins to ease like crazy and the Yen falls by 25% and import costs soar (mainly food and energy). It’s pretty clear. Just take a look at Japan’s CPI figures.

  • Suvy

    It’s not a matter of trying to control deflation as it is to avoid it. Inflation is a metric that can’t really be calculated because money isn’t neutral anyways. If you keep letting the total real debt burden increase, it will drag on growth (see Japan from 1990-present).

  • PeterP

    “I actually think their government debt is dragging their growth downward. ”

    OK, that is your personal opinion. I think it is completely wrong. In any case it doesn’t prove or disprove anything. Japan’s CPI figures showed a drop the moment BoJ did QE.

    Moreover: Sumner’s model is not that the CB bids up prices, he somehow believes that the size of the monetary base itself creates magic. You at least have some mechanism in there, he has a completely unsupported belief that people expecting the monetary base to get larger do some stuff, something never observed in the known universe. Despite what he says, the US TIPS spreads didn’t even flinch when QE1, QE2, QE3 were announced. They moved once at QE4, (or was it QE3), and came back 10 days later. Markets also have stupid beliefs and rates jerk on CB actions, but it doesn’t prove that the mechanisms are in place.

  • socal

    this is where “ideology” comes in to play. in the future, real science will dispose of ideologies, I think… humans don’t like to be controlled, or manipulated in the long term. in the short term, they almost always take the bait, but over time, the effects wear off. if you’re due for a hangover, you gotta just suck it up and deal with it. in computer science, they call it garbage collection.

  • Suvy

    Right, we have a debt problem. How do you fix a debt problem? Austerity, inflation, and debt restructuring. You don’t do what Japan did and just kick the can down the road with no growth for 25 years. We can’t do that.

  • socal

    1 year term limits on all politicians would be a good place to start!

  • Suvy

    Monetary policy works with a lag. CPI is running at around 1.1% right now and 1.4% without imputed rent after decades of deflation. Import costs are soaring along with food and energy costs–Japan imports almost all of its energy. The BOJ successfully ended deflation in a few short months. I basically view QE as a currency depreciation.

    Don’t get me wrong, I’ve had a lot of arguments with Sumner and I don’t agree with Sumner on a lot of issues. Sumner never admits he’s wrong and he’s very difficult to deal with. However, he does know a lot about monetary policy and monetary history. I actually agree with Sumner on monetary base increase expectations. Expectations play a role in everything.

  • xman_11530

    Sorry, I don’t agree with the thesis that inflation is low.

    Roughly in order, my largest expenses are taxes, education for kids, health insurance and living expenses (utilities, gas/auto, food). Everyone of these is screamingly well over 6% per annum. This is before ACA cancels my company’s health insurance. That will likely double those costs.

    I will admit that the prices for electronics and clothing have fallen. However, how many tv’s/computers does one house need? (We have 8 tvs and 7 computers.) Clothing? My wife and daughter have closets full of clothes; we never need to buy another piece of clothing in my lifetime.

    The inflation statistics are flawed.

  • Cullen Roche

    There’s no way your gas and food expenses are up year over year. Both are down 7-10% year over year. So unless you’re getting ripped off or buying these items from weird places then this is simply impossible.

  • xman_11530

    Forget your stats and go to the store and grocery shop. You will be amazed at what you find.

    I shop infrequently so I was amazed at the price difference from my previous trip. A big bag of IAMs dogfood cost over $30. Scott’s 1000 sheet toilet tissue rolls are over a buck. Think about it: after sales taxes- which are up- $50 barely gets you a bag of dogfood and a 16-pack of toilet tissue- barely. That is inflation my friend.

    As for gas, its $3.45/gallon. I just checked, locally it was $2.60/gallon 4 years ago and $1.50/gallon 10 years ago…So while it is down year on year, the price trend is one way and it isn’t sub-5%.

  • Cullen Roche

    Well, inflation is calculated on a YoY basis so cherry picking 5 years doesn’t really apply. If you’re going to accurately discuss inflation then use it on a YoY basis because that’s how it’s calculated.

  • bart

    Do notice that he didn’t contradict you on “taxes, education for kids, health insurance and… utilities”.

    And the IMF world CPI is up 3.3% since last year. Plus his very own inflation measure is substantially higher than the bogus CPI. Even the BPP inflation index is over double the bogus CPI.

  • Cullen Roche

    The CPI is a basket of goods that calculates the broad price index. Cherry picking components is silly. Anyone who says inflation is high is misrepresenting reality. Not only is the low inflation obvious in key components like food and gas, but it is confirmed by many independent gauges like the BPP. The only index that seems to say inflation is high is the Shadow Stats index which was created by someone who has been predicting hyperinflation for 10 years. How long do people have to be wrong about EVERYTHING before they stop buying their BS?

    And frankly, the best indicator of inflation is long bonds. Bond traders wouldn’t be sitting around earning negative real rates on the riskiest holdings if inflation were high. So, the market is the purest tell on inflation and the bond market very clearly says that there is low inflation.

  • xman_11530


    How am I misrepresenting reality? I am talking about real world items. The CPI refers to a hypothetical basket of goods that doesn’t hold up when the data is drilled into. The purpose of the CPI statistics is to obfuscate not illuminate. CPI’s are understated, because there is a huge incentive to not pay cola’s, inflate away debt and make it harder for savers to realize how badly they are getting screwed.

    Other than gewgaws imported from developing countries- for a typical family- exactly what actual items would you say are not up in price over last 10 years. I guarantee those items are a small percentage of a typical middle-class budget.

    Gasoline has almost doubled in 10 years and it’s up almost 33% in four. Education, taxes, healthcare are up just as much-perhaps more. Those are real costs.

    Using CPI instead of real date is like driving a car without looking out the window, because you have a map. (By the way, MSRP for 2014 base Camy 22,235; MSRP for a 2004 base Camry 18,045.)

    For your own edification, pick a consistent basket of grocery items (i.e. dont substitute chicken wings for steak). Use actual store prices from now and 5 or 10 years ago. I will bet dollars to donuts that the prices are up over last 5 or 10 years by well over 5% per annum (By the way have you seen the price of donuts and coffee lately?)


    As for long bonds, they is no longer an accurate measure of implied inflation. Why? The Fed – who is very price insensitive- has completely distorted the rate by purchasing over 30% of 10 year equivalents. No one in their right mind would loan their own money for 30 years at 3.5% as an investment. That is OPM.

  • bart

    As I said, you didn’t contradict him on “taxes, education for kids, health insurance and… utilities” being quite high.

    And the IMF world CPI is up 3.3% since last year.

    Plus your very own inflation measure is substantially higher than the bogus CPI and notes issues with the BLS bogus calculation of home prices. Have you changed your mind on the CPI being understated?
    Even the BPP inflation index is over double the bogus CPI.

    Plus, there have been many times where people have held bonds paying negative rates.

    In other words, you changed the subject and didn’t address the facts and realities noted.

    Believe that the CPI fairly states inflation if you like and it’s ultra low, but it doesn’t work for me, although I do believe that Shadowstats has overstated inflation for a while now.

  • xman_11530

    they ‘are’ in last para.

  • John Daschbach

    The long bond is a good indicator, but not perfect. As you posted recently relative portfolio bond holdings are about 2x the level they were before the 2008 crisis, so demand for bonds is likely higher than it would be if we had the same level of bond holdings as before the crisis.

    One of the more interesting things I find is that for over 30 years, as government debt issuance has increased, the long interest rate has steadily decreased. Part is surely the decrease in inflation, but part is likely to be increased demand for NFA’s.

    But, as I often note, the real danger for the US is deflation.

  • Cullen Roche

    Prices rise in a credit based monetary system. This shouldn’t surprise anyone. Understanding how those price increases relate to actual living standards is different. If broad prices rise by 10% over 5 years and I am making 12% more than I did 5 years ago then my income purchases more goods and services than it did 5 years ago. Referring to prices over a 5 year period without putting it into context is pointless. Are you making the same exact income you did 5 years ago?

    According to the Social Security Administration the real median wage is up 6% since 1989. So most people are not going backwards. And if you want everyone to go forwards then I guess you need to move to China so your government can dole out the same benefits to everyone. But I presume that’s not the world you’re looking for. :-)

  • Cullen Roche

    Bart, you’ve been complaining about high inflation and potential hyperinflation for years now. Come back to me when there is even a shred of evidence confirming your views. Up to now, your claims are backed up by rhetoric and little else.

  • bart

    “According to the Social Security Administration the real median wage is up 6% since 1989. ”

    But that’s based on using the CPI, and even your own measure (and the bogus BPP) shows that it’s too low.

    That very harsh comment about moving to China was low, and not befitting a real discussion.

  • Cullen Roche

    My measure includes housing which is a hybrid of investment and consumption. Using it as a broad inflation gauge is not the same as looking at a basket of consumer goods. So I don’t know what that has to do with anything other than the fact that you seem to misunderstand how I use that index.

    The China comment was a joke. That big smiley face next to it is the give away. :-)

  • Cullen Roche

    Anyhow, I get it. Tell me if I have this right so I can conclude this talk:

    1) The govt is “printing money”
    2) The govt is ruining our lives.
    3) Hyperinflation is coming.
    4) Buy gold.

    Did I miss anything? Maybe instead of all the conspiracy theory talk about the CPI we can just post that in the future and save ourselves a whole bunch of time getting to the conclusion. Deal?

  • bart

    Obviously I’ve hit a huge nerve on you, and you’ve gone into attack mode instead of dealing with all the facts cited. Fail.

    Fine with me that you think the CPI is correct and we have ultra low inflation. I don’t have that much trust in our lying and deceiving government. There’s lots of examples over the decades, like the recent NSA mess, or even the Pentagon Papers etc. etc.

  • Cullen Roche

    Btw, that comment was also a joke. The govt doesn’t actually print money. The govt isn’t actually ruining our lives. Hyperinflation isn’t coming. And you should never make gold the center of your portfolio. Ever.

  • bart

    Your measure shows that inflation is higher than the CPI. That’s all I stated, in the sense that your work & chart also shows that the CPI is understated.

    Ipso facto.

  • Cullen Roche

    In order to hit a nerve you’d have to assume that I actually care about the predictions made by people who say our govt is ruining our lives and that hyperinflation is coming. Au contraire bonjour.

  • Cullen Roche

    No, my measure shows that an asset that is part consumption and part investment is appreciating a lot. Saying the housing market is up is not the same as saying inflation is up. Housing is not a perfect measure of consumer goods. That’s why the BLS doesn’t include it.

    My index is a measure of potential economic disequilibrium. It’s not a measure of consumer prices.

  • bart

    Wrong on 3 of 4 points, and yet another attack and heinous attempt to paint my views incorrectly – again.

    You’re not interested in a real discussion.

  • Cullen Roche

    Tit for tat I guess. Your persistent 5 year claims of high inflation are an attack on the intelligence of every person reading this commentary and I’ll thank you to stop making ridiculous claims that have a long track record of being based on a totally false perception of the monetary system.

    Thanks. Btw, my comment above was a joke. Lighten up!

  • bart

    Your inability to have a actual discussion is a different kind of joke.

    Continue with the attacks and baiting all you like. Anyone who know what a real debate and discussion is knows what you’re attempting isn’t that, and is designed to divert from the various facts that I’ve cited more than once.

    Bye for now, it’s worthless to attempt a real debate/discussion here when all you’re interested in is attacking and baiting and avoiding.

  • Cullen Roche

    Bart, let’s be real. You aren’t here to be convinced that inflation is anything other than high. The high inflation conspiracy theory crowd is not out for answers. They’re out to spread their agenda. You hate the govt and you’ll do anything to spread that agenda. Just fess up to it already. I am tired of seeing people like you tip toe around it. Just get your real opinion out in the open so we can all see what you’re really getting at.

    I’ve had this discussion too many times with you to be convinced that you’re here for any other reason than to confirm your own biases. You and Vince, and Mister Market and a handful of other people have been broken records for 5 years. You can’t stand the govt and your hyperinflation predictions your favorite way to say it without actually saying it. Don’t try to pull this “woe is me” song and dance about how you’re now here to have a “real debate”. There is no such thing as a “real debate” with someone who believes hyperinflation is coming because no one can ever change your mind that you hate the govt and probably always will.

    Look, I don’t care if you hate the govt. I hate govt sometimes. But just get it out there. Admit that you’re convinced the govt is printing money so we can all understand what is really driving your views. I’ve seen this too many times in these comments to fall for the idea that you’re anything other than someone who has a very politically motivated view of the monetary system. And for someone who focuses on operations, I just don’t have a lot of patience for that.

    Take care.

  • xman_11530

    “Demand for bonds” is higher since 2008, because the Federal Reserve is buying $85BB per month and now owns over 32% of 10 yr equivalents. Did you notice what happened to the 10 yr when the FED mentioned the word ‘taper’.

    By the way, you keep asking for evidence of higher inflation, but after I show real examples you ignore them and make absurd attacks.In fact, you cannot provide one example of prices having fallen over the last 10 years for any meaningful item.

    Inflation is here and quite real. If you are in the business, I pity your customers if you are not protecting them from it.

  • Cullen Roche

    Xman, I just showed you that real median ages are UP since 1989. Prices are up also, but wages are up more since then.

  • bart

    I wish I could say I’m looking forward to hearing your abject apology about future hyperinflation, per our bet, but the social consequences will bring me no joy to say the least.

    By the way, I had a bet with myself that you’d hammer on me again after our long discussion on hyperinflation and my 2010 post about the monetary6 base mostly being locked up, and I won.

    Actual proof that hyperinflation was delayed in my opinion (per that 2010 post and others linked previously) is 100% proof that you just plain can’t deal with actual facts, and MUST LIE about the opinions and facts of others when they contradict your dogma/ideology.

    Very tacky of you to say the least.

    And the BLS not considering actual house prices as part of consumer prices is a massive joke. Asking what would you rent your house for is way beyond silly and unprofessional as a substitute, much like the various weighting games. At least the BLS games and intentions became a little more obvious in the recent noise about changing to C-CPI-U.

  • Cullen Roche

    Bart, there’s an enormous error in your conspiracy theory that the BLS data is understated. If that were right then that means RGDP would be that much lower. If you used Shadow Stats, for instance, then that basically means the economy has been contracting for what, 20 years? The problem with this view is that the ISM, industrial production, employment and a whole slew of other data points refute this.

    Just connect the dots here and it becomes obvious that claims about the BLS measure of CPI being understated are wrong.

    Btw, I would say I look forward to your apology on your erroneous hyperinflation prediction, but I’ve seen this dance from too many people like you to believe you’ll apologize because the line is always the same: “just you wait”…..

  • wt1962

    My rent is up 12%, cable and internet up almost 40%, food at least 8% higher than a year ago, clothing 20% higher, gas, car, and the list goes on and on. Forgot to mention I live in the United States, please let me know where you live Cullen. I’m sure you don’t live anywhere near here or maybe you still live your folks and they still paying your bills. In this case ask them and you’ll have a surprise.

  • Cullen Roche

    wt1962, I live in coastal San Diego which is one of the most expensive places in the entire world to live. If there is a place where there’s inflation it certainly would be happening here big time – especially with the extraordinary amount of retirees and millionaires in the surrounding areas.

    There’s an obvious lack of common sense in the idea that inflation is very high though. If it were high then that would mean the govt is overstating real GDP. And with RGDP at about 2% then that would mean that the economy is either not growing or has been contracting. But there are dozens of broad independent indicators that refute this (ISM, industrial production, employment, etc). So it’s obvious that if inflation is high for you then you’re the exception and not the rule. A little economic common sense debunks this myth pretty easily.

  • bart

    There you go again, as expected. Can you even read what I’ve posted? I’ve said MANY times that I believe that Shadowstats is way high on their inflation measure, and yet you insist on bringing it up again and again and again, as if it represents my viewpoint – and as you did above on your 3 wrong assertions that don’t AT ALL represent my viewpoints. That’s really disgusting, childish and quite unethical for a person who continually posts about being willing to look at facts but attacks and diverts when they’re presented.

    I’ve cited many that you’ve never responded to, and I’ll use the BPP & IMF measures as just two examples of many today. BPP is over double the CPI currently, and yet you ignore it and refuse to comment. It’s also substantially closer to the IMF measure than it is to CPI.

    It’s apparently impossible in your book for anything that the government issues in the way of stats to be incorrect or understated (or ever revised after the fact, like the GDP drop during the 2001-2 recession being revised away, and INDPRO in 2008-9), in spite of all the evidence and data points on the other side.

    As I said, it’s fine with me that you believe the CPI, but misleading others when the facts are as clear as I’ve cited and written about just doesn’t cut it for me.

  • Cullen Roche

    Bart, the BPP is tracking the CPI to near perfection. How can you claim they’re diverging? This is just an outright lie.

    Anyhow, this is pointless. I get it. Inflation is very high, the govt is terrible, hyperinflation is coming, etc.

  • Cullen Roche

    Here’s that BPP chart:

  • bart

    IF RGDP goes from -4% to -1%, that’s growth.

    You should be more careful about your assertions.

    You should also be more careful about your economic facts. RGDP is adjusted by the deflator, not the CPI.

    The government may very well pay lower prices than consumers and have more hedonics applied. :-)

  • bart

    Ah yes, lying with charts by editing it. Very convenient that the chart ends about 3 months before the most recent data. Nice, but yet another fail.

    Find and post a more recent one, or the one that you edited. The most BPP recent value from September is about 108.1, which translates to about 2.1% inflation – almost double the most recent CPI reading of 1.2%.

  • Cullen Roche

    Same difference. Same irrelevant point on your part.

  • Cullen Roche

    Now 2.1% is high inflation????? There’s no reasoning with you. Good bye Bart….

  • John Daschbach

    The demand for bonds was based entirely on the private market data Cullen recently posted. It has nothing to do with the Fed.

    In fact, QE has raised long rates. The wacko world ignores real data (comparing interest rates when QE is in effect to when it is not).

    The CPI is not a perfect measure. It reflects consumer prices in a broad measure. But limited anecdotal evidence, as you prefer, is something that people who are unable to understand mathematics, statistics, and rational thinking, gravitate towards.

    It is hard, or impossible, to reason, with people who reject the basics of rational discourse.

  • PeterP

    OK, expectations play a role. But why would expectations of something nobody cares about (the monetary base) play a role? Sumner assumes the monetary base has some causal powers based on his childish model of the banking system in which commodity-like money is shuffled around, which is light-years away from the credit system that has been in plac for the last 4000 years at least. That is the problem.

    I think expectations do play a role, if I expect my income to go up or down maybe I change something, but nobody cares about the base, because why would they.

  • JRM

    Innocent bystander with my 2 cents. Food prices are relatively flat YTY. Home prices rising, but my payments declining due to refinancing, Gas is coming down. Technology prices coming down fast. Whose taxes have increased? Besides the payroll holliday phase-out and the +$400K crowd, I don’t understand this comment. Education prices scare me (I have two academically inclined pre-teens), that and health costs are definitely still on the rapid upswing, but maybe slowing a bit.

    No matter how you slice it, hyperinflationary fears seem absolutely, hilariously overblown to this layman. Education costs increased because they were enabled by the delivery model (market inefficiencies of several types), and it seems then that health care is more of an outlier than a core indicator of inflationary pressures.

    Personally, I think the mechanisms that drive inflation can vary with economic conditions (not an unusual belief) and are also poorly understood – so firm beliefs in a specific future result are difficult to fathom.

  • Suvy

    In the long run, the QTM does hold. In the short run, it doesn’t. So future expansions of the monetary base do matter today, especially in a different interest rate environment. Not so much today though.

  • Suvy

    There’s no way the 10 year is running at 2.7% and the 30 year is running at <4% if the government was lying about inflation.

  • PeterP

    “In the long run, the QTM does hold. ”

    This is a religious belief of his that is not based on anything resembling understanding of the monetary system. QTM has no reason to hold in the short run and in the long run as well. There is no mechanism for it to hold in the long run. Again, nobody cares about the base and the base causes nothing.

  • xman_11530

    Does yesterday’s news that the unemployment rate just happened to be accidentally improved through survey fraud right before the 2012 election make anyone question that the CPI statistics just might not reflect reality?

    It would certainly answer why ‘real world’ inflation feels much higher than the CPI.