Low Inflation – It’s a Global Phenomenon

Despite persistent worries about “money printing” and the Fed’s actions, inflation has remained benign in the USA.  But you might be surprised to notice that this isn’t merely a US phenomenon.  It’s actually a global trend.

Figure 1 shows an overview of global inflation rates.  I’ve taken 5 major regions/countries to show the recent downward trend in inflation rates.  Japan is leading the way into a full blown deflation at -0.9% while the UK tops the chart at 2.8%.  The USA rounds out the middle of the pack at 1.5% and is expected to show further signs of disinflation in the coming months.

The low inflation is a global phenomenon. 

Chart via Orcam Investment Research:



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Cullen Roche

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services. He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance and Understanding the Modern Monetary System.

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  1. Interestingly I had done an inflation calculation earlier today and when I looked at yours I thought it looks similar, but US inflation is higher in yours. In the end, if I use the ‘CPIAUCSL’ data series I get the same thing for US inflation up through when you stopped. But if you continue through the latest data for the US, through March 2013, it get’s far lower. The CPIAUCSL for March 2013 YoY is 1.48%. For the PCEPI and the PCEPILFE it’s 1.01% and 1.15%. Using any of these indexes, long term inflation has been flat since around 1995 at 2%. You can easily draw a straight line by eye through it, or see that the indexes on a log scale are close to linear, with a slight downward curve. The PCEPILFE is now at it’s all time low, and the other two are lower than all data except the mid 2008 to late 2009 period when the other two indexes showed deflation for around a year.

    I have some ideas why this has has occurred but it’s hard to show strong and direct correlation with any single, or simple set of factors. But one might have a glimmer of hope that the “printing money” crowd will at some point realize they don’t understand the monetary system and stop using this incorrect terminology. Sure, if we printed money we would get inflation, but the fact that we are not should make it clear that the asset swap is not printing money!

  2. 1. I don’t believe those inflation numbers for one minute. In that regard John Williams Shadowstats provide a better picture of REAL inflation.
    2. But the graph is useful because it shows what the overall trend is.
    3. When I look at the graph, it seems it reflects – more or less – the CRB index.

  3. I looked up John Williams. This is what I found:


    “He claims to have went about telling the world about it on The New York Times front page (no articles written by him are found in the archive) and Investors Business Daily (no articles are found in the archive)”

    I did find this at http://www.shadowstats.com:

    “…and my results led to front page stories in 1989 in the New York Times and Investors Daily (now Investors Business Daily), considerable coverage in the broadcast media and a joint meeting with representatives of all the government’s statistical agencies.”

    I looked in the NY Times archives for author John Williams for all of 1989. I didn’t find anything.


    I also tried Walter J. Williams and Walter Williams. Struck out with those too.

    Can anybody find a front page article by this guy in the New York Times from 1989?

  4. John Williams is a certified Wacko. A fixed basket of goods is only valid for someone who has severe mental illness like OCD. Has he ever cooked every day? You go to the market with hundreds of possible recipes you can make for the next week in your head and buy what is a good deal in season. Asparagus in the spring, tomatoes and basil in the summer, squash in late summer, brussels sprouts and cauliflower in the fall. Of course people substitute items in their basket based upon perceived value. Obviously not just food items, we do this with most things.

    To say the CRB graph looks more or less like the CPI graph is to say the both increase over time. If you actually look at the data you see that for the most part major changes in CRB often correlate with small, but noticeable changes in slope of the CPI. As expected, the correlation is better when lagging the CRB by 3 – 9 months (depending on transition feature). But now we have seen an almost a 50% drop in the CRB over the past 2 years with perhaps less than the correlation between the CRB and CPI than we have seen since the CRB data is available. I don’t know, but if the correlation holds with a bit longer time lag than we’ve seen over the past couple decades we could be in for an extended spell of mild deflation.

  5. My question is what you base your numbers on? Money supply? Prices? Definition is the key. Prices go up much higher than 1.5% but prices increase is not the definition of inflation.

  6. Inflation defined is the increase of money supply
    so inflation cannot be low. The US pumps 85 billion
    each month out of thin air, which is over 1 trillion a year. This
    doesn’t include what the banks create from
    fractional reserve banking of 10% holding to loan
    90% out. Crazy Crazy Crazy money printing
    Is inflation……..

  7. Low inflation is NOT a global phenomenon, it’s only happening where the private debt is extremely high. It’s better not to consider inflation data from China and/or India with the same level of accuracy than in the west. Richard Koo was the first to explain why and despite Cullen has some different opinions about technicalities like the money multiplier (Cullen is right) conclusions are the same. Inflation is quite high in rich countries like Singapore or Hong Kong and in countries which are experiencing a recent growth like Vietnam, it’s still high (but lower than in the past) in an economic giant like Brasil. All of them have much lower private debt than us in the west.

  8. Can someone explain exactly how the CPI is calculated? I looked at my expenses from say 05 and can see the cost of gas, electric, food, clothing are all double. My mortage is cheaper with the rate decrease but that’s about equal to my health insurance premium increase. Basically a quick look at Quicken can tell me I’m definately not seeing %2 so where’s the difference?

  9. In the World Bank data there seems to be a range of data (private debt/gdp, inflation) for 2011 (the latest year)

    Hong Kong (202, 5.2), US (191, 3.1) South Africa (142, 5.0) Singapore (112, 5.2) Vietnam (112, 18.6) Portugal (192, 3.7) Switzerland (170, 0.2) Japan (173, -0.3) France (116, 2.1) Panama (105, 5.9) UK (186, 4.5)

    I would say the correlation with private debt is not robust.

  10. That’s an intesting site, thanks.

    The only issue I have, and maybe there’s research that proves me wrong, but it seems that if you take a million products and aggregate the prices you won’t see an increase because most products fail over time. The few usefull one don’t really decrease. We shouldn’t put copper pipe and the Shake Weight in the same box.

  11. Since we’ve become much more efficent at mining and refining natural resources shouldn’t those prices be decreasing? Meaning if iron cost the same as it did 20 years ago it’s actually in a sense inflation?

  12. Only a subset of people define inflation as an increase in the money supply. That’s silly. It renders the concept meaningless. Who cares what the money supply is? What people care about, regarding inflation, is prices and the price level. Generally abd broadly, are prices increasing or decreasing, and at what rate? <-is what most people mean when they say inflation.

  13. Health insurance is up about 8% in the last year, per the BLS.

    Water, sewer & trash is up about 5.5%.

  14. That index, like the BPP, is not even as transparent on its methodology as the BLS, and also does not include services which are over 2/3 of the economy.