David Rosenberg: The Inflation Songbook: Play it Again

by David Rosenberg, Rosenberg Research

Highlights

THE INFLATION SONGBOOK: PLAY IT AGAIN

• Inflation is not a one-off change in the price level caused by a short-term distortion to protect profit margins but is a persistent acceleration in prices
• Pundits who are talking incessantly about the “Roaring Twenties” never tell anyone that for the next decade the economy was in a period of mild deflation and long-term bond yields actually fell 150 basis points
• There is a 75% inverse correlation between the debt ratio and core inflation — the debt morass ends up being a future drag on real GDP growth and hence the downward pull on inflation and interest rates
• Post-summer, expect to see production expand, demand growth recede, and all this inflation chatter to quiet down — and the case for a bull-flattener in the Treasury market will be very strong in that environment
• It’ll be interesting to see what aggregate demand growth looks like in the future with an ongoing resource gap in the labor market and a consumer base that is tapped out when it comes to durable goods expenditure