Rising prices equal an inflation outbreak (apparently) but then the prices start falling again

As I composed just recently in my UK Guardian short article (June 7, 2021)– Price increases need to be short-lived– so lets not resurrect inflation as a bogeyman– the inflation hysteria has truly set in. I supplied more detail in this blog site post– Price increases ought to be temporary– so lets not resurrect inflation as a bogeyman (June 9, 2021). They can not actually comprehend what is occurring so when they see a chart increasing it needs to be inflation and that relieves them since increasing deficits and central bank bond purchases have to be inflationary according to their perverted theoretical reasoning.

The inflation scare rises on a number

When the United States Bureau of Labour Statistics released the May 2021 their most current Consumer Price Index data, the speeding up inflation narrative was offered an increase last week.

In their The Economics Daily short article (June 16, 2021)– Consumer prices increase 5.0 percent for the year ended May 2021– we found out that:

A minimum of the United States Federal Reserve Monetary Committee didnt really blink.

In their June 16, 2021 (launched on the exact same information as the BLS information came out)– Federal Reserve problems FOMC declaration– they maintained policy settings and repeated that it was “committed to … promoting its maximum work and price stability objectives.”

This set off all the inflation scaremongers however they really must have been more circumspect.

The Consumer Price Index for All Urban Consumers increased 5.0 percent from May 2020 to May 2021. Rates for food advanced 2.2 percent, while rates for energy increased 28.5 percent. Prices for all products less food and energy rose 3.8 percent for the year ended May 2021, the largest 12-month increase considering that the year ended June 1992.

It revealed that:

So no rush to an inflation is out of control story.

The Committee chose to keep the target variety for the federal funds rate at 0 to 1/4 percent and expects it will be appropriate to keep this target variety till labor market conditions have actually reached levels constant with the Committees evaluations of maximum work and inflation has actually risen to 2 percent and is on track to reasonably go beyond 2 percent for some time. In addition, the Federal Reserve will continue to increase its holdings of Treasury securities by a minimum of $80 billion monthly and of company mortgage‑backed securities by at least $40 billion monthly up until significant more development has actually been made towards the Committees optimum employment and rate stability goals.

If inflation is speeding up why are long-lasting bond yields falling?

So their only contribution is to shriek rising inflation.

I provided an after-dinner address to a financial markets conference in Sydney recently and inflation was on everybodys tongue throughout the supper.

I was not stunned how rapidly the narrative has turned in this method.

They can not understand the world in any other method.

Except that they have consistent problems dealing with the truth that puzzles this action.

See food, and eat it sort of stuff.

As I kept in mind throughout the talk, the mainstream macroeconomics narrative is up until now out of kilter with truth that supporters are just coping with the harshness by returning to Pavlovian-type triggers.

In their case, they have actually been seeing reasonably large fiscal deficits and central bank possession buying programs and the only thing their malfunctioning design says about that sort of combination is rising interest rates and bond yields and inflation.

If the US economy was overheating and inflation was about to break out then why would long-term United States bond yields be falling recently?

Since mid-March, yields have flattened and now falling.

Have a look at the history of the US 10-year Treasury bond yields since the beginning of 2021.

As the economy started to opened a bit in February and belief improved, investors started to diversify their portfolios far from the risk-free Treasury bonds and yields rose a little.

You can get for all offered maturities from the United States Department of Treasurys website– Daily Treasury Yield Curve Rates.

That is a concern I presented to the supper.

Why does this militate against the speeding up inflation narrative?

The first surface graph shows the motions across the maturities in between May 3, 2018 and June 18, 2021.

Here are two visual depictions of the United States Treasury yield curve.

Provided there is no default or credit threat in holding a United States federal government bond (or any bond released by a currency-issuing nation) the only unpredictability that a financier faces is the path of inflation over the time that these money payments are pertinent.

The greater the expected inflation, the greater the risk premium that will be developed into required yields.

You can see in this chart (which is simpler to see than in the previous surface graph) that over June (compare the thicker blue and red lines), the yield curve is flattening instead of steepening.

One day after the US Bureau of Labour Statistics launched the United States CPI data, they released (June 17, 2021) the released an article– Real typical weekly revenues down 2.2 percent from May 2020 to May 2021– in their outstanding The Economics Daily publication, which highlights the huge information news of the day.

I discussed the relationship in between movements in yields and prices of government bonds in this post– Whether there is a liquidity trap or not is irrelevant (July 6, 2011).

The basic rule is that when bond costs rises (fall) due to require fluctuations, yields fall (rise).

The 2nd compares yield curves from the start of 2021 to June 18, 2021.

The bond financiers closely view the reserve banks financial policy.

So the so-called yield curve, which depicts the current bond yields at all maturities will steepen.

US real incomes down 2.2 percent

For those who are a little hazy about bond markets– or set income markets– a bond represents a future circulation of cash returns which comprise regular discount coupon (interest) payments that are fixed and the refund of the principal (face worth) upon maturity.

We ought to not anticipate to witness that sort of dynamic if inflation was about to runaway.

Since inflation reduces the genuine worth of the these future cash circulations, expectations of inflation become part of this dynamic.

If investors anticipate that inflation is ending up being an issue, then they will require higher yields at the primary issue and will be prepared to pay less for exceptional bonds in the secondary market.

If they form the view that the policy rate of interest that the central bank sets is too low, then they will up their inflation expectations (since they have been conditioned to think this state will promote inflation), and need greater yields at the investment maturities (long-term).

We likewise go over the distinction between main and secondary markets in that post.

The BLS reported that:

Small earnings grew by 2.6 percent only.

Average weekly hours had actually increased from 34.7 to 34.9 hours.

Genuine (adjusted for inflation) typical weekly revenues reduced 2.2 percent from May 2020 to May 2021. The modification in genuine average weekly revenues resulted from real typical per hour earnings decreasing 2.8 percent from May 2020 to May 2021. The modification in genuine average per hour revenues, integrated with a boost of 0.6 percent in the average workweek, led to the 2.2-percent decline in real average weekly profits over this period.

No earnings explosion noticeable there.

In May 2020, average (nominal) hourly profits were $US29.74 and a year later they had approached to $US30.33 (Source).

Which brings me to the information again

Here at the current FEET Commodities charts– for Metals and Agriculture and Lumber as at June 18, 2021.


Agriculture and Lumber



Here are two more in-depth charts– for Soybeans and Lumber– over 2021 to June 18, 2021.

Where are the screams of deflation?

Here is the OPEC– Basket Oil Price– from 2003 to June 17, 2021.

Trade unions are pernicious and too weak legislation has actually made it very hard for workers to fight for greater real salaries.


I could have shown the motions in energy rates, which have actually been used to provide credence to the accelerating inflation story.

Keep in mind that the current level did not yet reach the pre-pandemic level and in recent days has actually begun to lessen (see the next chart).

This is just a reversal of the rate falls that occurred when the vehicles left the roads throughout the lockdown.

I understand that it is easy to simply be trapped by the data of the day, which does not reveal underlying pressures and just reinforce ones views.

And while in another era, these may have set off a genuine wage-profit margin struggle in between labour and capital, I can not see the institutional equipment in place now to assist in such a fight of the markups.

Sure adequate oil costs have actually increased in the last few months as more automobiles are going back to the roadways.

The point is that there are cost pressures at present however I consider them to be transient as our markets and economies adapt to the enormous disruptions in the global supply chains that have actually arisen during the pandemic.

This chart reveals the information from April 2021 to June 18, 2021.

And, to comprehend the inflationary potential one needs to value the levers that can be promoted by some cost or need triggers to generate a new inflationary spiral.

That is enough for today!

(c) Copyright 2021 William Mitchell. All Rights Reserved.

As I wrote just recently in my UK Guardian short article (June 7, 2021)– Price increases should be short-lived– so lets not resurrect inflation as a bogeyman– the inflation hysteria has actually set in. I offered more detail in this blog site post– Price increases need to be short-term– so lets not resurrect inflation as a bogeyman (June 9, 2021). The inflation hysteria truly shows the reality that mainstream economic experts are lost at sea at present provided the dissonance between the genuine world information and the errant forecasts from their economic structure. They can not actually comprehend what is occurring so when they see a graph rising it must be inflation and that relieves them because increasing deficits and main bank bond purchases have to be inflationary according to their perverted theoretical logic. Real (adjusted for inflation) typical weekly incomes decreased 2.2 percent from May 2020 to May 2021.

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