If we recall the middle of 2009, one of the hottest debates among traders and economists was revolving around the subject of US economy experiencing inflationary or deflationary pressure. Many experts expected that, following the unprecedented central banks’ expansionary money supply policies, the G7 countries would witness a rapid increase in the level of prices. Exactly like the first half of 2009, the US CPI during the 1H10 has hovered near the flat line. Moreover, the all-item inflation numbers shifted into negative territory when oil went through a price correction. The annualized core inflation rate from December 2009 to May 2010 stands at only 0.3%, the tamest five-month annualized rate since early 1960s. If things remain status quo, is US in danger of turning into a Japanese non-inflationary experience? Continue reading ‘Back To Safe Heaven’
Tag Archive for 'Inflation'
China took the entire world by surprise in the pre-crisis world economy, recording gigantic exports, consistently gigantic capital inflows, and imbalances in both stocks and real assets that could prove to be extremely harmful to the international economic stability in the short term and devastating to China in the long term. Some voices that called for restructuring were never heard in Beijing, simply because of the apparent success of high growth and low inflation economic dichotomy. However, China might have a very difficult time keeping inflation at its 2010 target of about 3 percent, after banks flooded the Chinese financial system with money in 2009. According to the median forecast of 14 economists, inflation may reach 4.4 percent this year. China’s GDP growth quickened to 10.7 percent in the fourth quarter, the fastest pace since 2007. The Chinese authorities affirmed a target of 8 percent growth for 2010, the same goal that the government has set and surpassed in each of the past five years. Nouriel Roubini said “this strong economic recovery implies that the super-loose monetary, fiscal and credit policy followed by China has to reverse itself or otherwise there is a risk of overheating and inflation”. Continue reading ‘China – The Wonderland’
Since the beginning of the century, we have witnessed far more crises than anyone in the world expected. We all remember the dotcom bubble, September 11 events, the collapse of the housing market, the failure of Wall Street brokerage firms (Bear Stearns and Lehman Brothers), the failure of Freddie Mac and Fannie Mae, the failure of AIG or the bankruptcy of General Motors. Despite all these heavy challenges and mounting losses, the global financial system managed to stay afloat. A key role in holding the system together could be attributed to the government bailouts and central bank interventions. Nonetheless, a potential commodity crisis especially a near-term food crisis could bring the global financial system to its knees. Continue reading ‘Food Prices – Danger Ahead’
Despite hitting the 12-year low in March 2009 at 666 points, S&P500 index managed to outperform gold’s annual return. Even though, the precious metal has been one of the hottest investment topics in 2009, the S&P 500 finished the year up 26% versus 25% for gold. As of December 31 2009, gold price closed at $1,095, rising for an unprecedented ninth year in a row after traders and central banks joined investors who turned to gold for price performance and protection. In 2009, gold price advanced about $220, a sum eclipsed in recent history only by 1979′s $286 surge. On a percentage basis gold rose 25 percent from its 2008 close, short of 2007′s 31 percent rise. Continue reading ‘Golden Fever’
Since 2005, the National Bank of Romania (NBR) has switched to an inflation targeting regime. That target level has been established in terms of Consumer price Index (CPI) with an upper/lower band of +/- 1 percentage point. In a nutshell, the new monetary policy strategy encompasses few key elements: i) the public announcement of the target inflation; ii) full commitment to price stability, while other goals become second-order priorities and iii) an increased transparency of the central bank’s actions. One of the main drawbacks of this monetary regime is emerging once the inflation rate has been contained at low levels. At that point, the probability of undershooting or overshooting the inflation targets is high and the results could be very costly at both ends of the spectrum. Continue reading ‘In NBR We Trust’
Traders, economists, strategists, central bankers are all exposed to a new dilemma: is the US economy experiencing an inflationary or a deflationary pressure? On one side, under a global turmoil environment where most economies are shrinking considerably, prices tend to fall and subsequently the aggregate demand for goods and services subsides. On the other side, due to unprecedented central banks’ expansionary money supply policies many analysts expect a rapid increase in the level of prices. The solution to the problem still represents a challenge for many investors since the near-term investment strategy is very much correlated with the tendency of the price index. Continue reading ‘Inflation vs. Deflation’
The Black Gold Rush
The Asian crisis of 1997, the failure of Long Term Capital Management and Russia’s debt default in 1998 send the crude oil price under the $10 a barrel. Since the beginning of the century, the global demand grew by 3.9% per year, while oil supply struggled to keep pace with demand. There were few major changes in the global oil market (i.e., non-OPEC supply growth slowed, OPEC’s spare capacity shrank, and OECD inventories fell) that pushed the oil price at $100 a barrel, in January 2008. Amazingly, at the beginning of July 2008, oil reached a record high of $147 a barrel. During 2008, the price of energy rose nearly 50%, than it collapsed by 74% during the fourth quarter. Trying to elucidate the meteoric trajectory, traders, analysts, and media talking heads came up with an endless chain of esoteric explanations. Continue reading ‘The Black Gold Rush’