Wednesday, June 24, 2009

Inflation or Deflation? The Global Perspective

The following chart from Bespoke is quite revealing. It shows of the present inflation rates around the world.

We quote Bespoke (underscore mine), ``For those interested, below we highlight a big bar chart showing the most recent inflation rates for 77 countries. The average unweighted inflation rate for all of the countries is 4.11%. Fifty-nine countries are currently seeing prices rise versus a year ago, 14 are seeing prices decline, and 4 are flat. Venezuela has the highest inflation rate at 27.7%, followed by Kenya, Iran, Ukraine, Pakistan, Guatemala, and Russia. Ireland is seeing the most deflation with a year over year decline in prices of 4.7%. China has the third biggest decline in prices at -1.4%, while the US is right behind at -1.3%. Whether or not you use this chart to make any investment decisions, it does provide a good look at where each country stands in regards to price movements."

Our observations: one in four countries have been experiencing inflation in the face of the crisis.The average inflation rate is 4%.

Nonetheless, Two things clearly standout:

One, inflation is relative. Common policy programs aimed to address national problems which have been structurally idiosyncratic apparently results to different levels of inflation.

Two, for those arguing about global deflation, these chart appears to strongly refute such an argument.

To add further, consider that the present climate has yet been operating under a "benign" phase of the inflation, what more if inflation secures a strong foothold in countries impacted by debt deflation??!!!

As Edward Chancellor of GMO aptly wrote in the Financial Times, ``There is no question that a determined central bank can get rid of deflation. It is simply a question of printing enough money. Economists have another term to describe the monetisation of government debt. The history of “seigniorage” goes back to the debasement of the coinage under the Roman emperors. Seigniorage is really a tax on holders of money and government debt which is paid via inflation. When carried to excess, it leads to hyperinflation."

You've got a serious inflation crisis ahead!

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