Tag Archives: deflation

China Factory-Gate Deflation Eases in New Signal Rebound Endures

Bloomberg, July 10, 2016

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China’s factory-gate deflation eased for the sixth straight month, giving policy makers fresh evidence falling prices are turning a corner after more than four years of declines.

The producer-price index fell 2.6 percent in June, compared with a 2.8 percent drop a month earlier, the National Bureau of Statistics said Sunday. The decline was the smallest since late 2014. The consumer-price index rose 1.9 percent from a year earlier, compared with a median economist estimate of 1.8 percent and a 2 percent gain in May.

Factory-gate deflation that has persisted since early 2012, and was at its worst late last year, has been easing amid a rebound in property sales and higher commodities prices. Economists surveyed by Bloomberg project producer prices will turn positive in 2018. That eases pressure on the People’s Bank of China to provide more stimulus to fight deflation, according to Raymond Yeung, an economist at Australia & New Zealand Banking Group Ltd.

“The negative PPI regime is about to end” and the CPI drop will be temporary as severe flooding boosts food prices, Hong Kong-based Yeung wrote in a report Sunday. “Price levels are generally steady and using monetary easing to mitigate deflationary risk is no longer required. The monetary policy stance of the PBOC will no longer be aggressive.”

Underlying inflationary pressures will continue and there isn’t likely to be a major easing on top of the “current ample liquidity environment,” CCB International Holdings economists Serena Zhou and Cui Li wrote in a note Sunday. They said flooding in southern China could spur a rise in fruit and vegetable prices due to transportation disruptions.
The PBOC has kept the benchmark rate at a record low since October. Data due for release on July 15 may show economic growth slowed to 6.6 percent in the second quarter, according to economists in a Bloomberg survey. The expansion in gross domestic product in the first quarter was 6.7 percent, the slowest since early 2009.
While policy makers will be reviewing their stance after the release of quarterly GDP data, easing deflation is doing the central bank’s job for it, Tom Orlik, chief Asia economist at Bloomberg Intelligence in Beijing, wrote in a report Sunday. The PBOC will probably maintain an easing bias but a major addition to stimulus is unlikely, he said.
“Data show factory prices continuing to edge out of deflation,” Orlik wrote. “That’s a positive for corporate profits and credit demand, even as the overall impression of continued subdued prices reflects the weak state of the economy.”
Prices for products leaving factories have fallen by more than 2.6 percent every month since October 2014. PPI declines will narrow through the first quarter of next year and post a 1.5 percent drop in 2017 before rising 0.2 percent in 2018, according to a Bloomberg survey of economists in April.
Food Prices
Producer prices for mining products and raw materials both continued their turnarounds from lows last year. Mining prices fell 8.2 percent from a year earlier, the least in almost two years, while materials prices slumped 6.1 percent.
For a story on the turnaround in factory-gate prices, click here.
Consumer price gains for food slowed to 4.6 percent from a year earlier from 5.9 percent in May. Non-food prices increased 1.2 percent, in line with readings since early last year.
On a month-on-month basis, CPI declined from May as prices of vegetables, fruits and eggs dropped, while gasoline, airline tickets, tourism and medicine were more expensive, the NBS said. Prices for metal and chemical products declined from May, leading to a month-on-month fall in PPI, the agency said.
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Consumer-price gains may get a boost from food as extreme weather disrupts supplies of vegetables and other staples. China was already reeling from the worst flooding since 1998 even before Typhoon Nepartak made landfall Saturday in east Fujian Province. Rains have affected two of China’s most industrialized provinces, Jiangsu and Hubei, and taken a toll on some smartphone producers, according to a report by China Daily.
The flooding will boost the CPI in July and August by about 0.2 percentage point to levels above 2 percent, Zhou Jingtong, Beijing-based director of macroeconomic research at Bank of China Ltd., wrote in a note.

John Rubino: Startling Inflation News Illustrates The Failure Of Easy Money

By John Rubino, Apr 13, 2016

Startling Inflation News Illustrates The Failure Of Easy Money

After three decades of epic deficit spending and three years of extraordinary money creation, Japan’s economy is enjoying a rollicking inflationary boom. Just kidding. Exactly the opposite is happening:

Japan households’ inflation expectations hit three-year low – BOJ

(Reuters) – Japanese households’ sentiment worsened in the three months to March and their expectations of inflation fell to levels before the Bank of Japan deployed its massive asset-buying programme three years ago, a central bank survey showed.

The survey’s bleaker outlook keeps alive expectations of additional monetary stimulus even as BOJ Governor Haruhiko Kuroda maintained his optimism that the world’s third-largest economy was recovering moderately.

Kuroda, however, warned that he was closely watching how a recent surge in the yen and slumping Tokyo stock prices could affect the outlook.

“Global financial markets remain unstable as investors are becoming increasingly risk averse due to uncertainty over the outlook of emerging and resource-exporting economies,” Kuroda said in a speech at an annual meeting of trust banks on Monday.

“The BOJ won’t hesitate to take additional easing steps if needed to achieve its inflation target,” he said.

The BOJ’s quarterly survey on people’s livelihood showed the ratio of households who expect prices to rise a year from now stood at 75.7 percent in March, down from 77.6 percent in December and the lowest level since March 2013.

A separate index measuring households’ confidence about the economy stood at minus 22.5 in March, worsening from minus 17.3 in December to the lowest level since March 2015.

The gloomy outcome underscores the dilemma the BOJ faces as it battles mounting external headwinds for the economy with its dwindling policy tool-kit.

The BOJ’s adoption of a massive asset-buying programme, dubbed “quantitative and qualitative easing,” in April 2013 was intended to spur public expectations that prices will rise, and in turn, encouraging households and firms to spend.

That has failed to materialise, forcing the central bank to add negative interest rates to QQE in January in a fresh attempt to accelerate inflation towards its ambitious 2 percent target.

The move has failed to arrest a worrying spike in the yen or boost business confidence. Japan’s economy contracted in October-December last year and analysts expect it to post only feeble growth, if any, in January-March. Inflation has also ground to a halt, keeping the BOJ under pressure to ease again in coming months.

A separate poll by private think tank Japan Center for Economic Research, among the most comprehensive surveys conducted on Japanese analysts, showed 39 of the 44 analysts surveyed projecting that the next BOJ move would be further monetary easing.

But Japan is a unique case; easy money is generating excellent growth and rising inflation pretty much everywhere else. Just kidding again. The US, after multiple QEs and a doubling of federal debt, is looking a lot like Japan:

Consumers’ Inflation Expectations Fell Again in March, Fed Says

U.S. consumers’ expectations for inflation declined in March following a rise from record lows the month before, according to Federal Reserve Bank of New York data released Monday.

The numbers, which have been highlighted recently as a potential cause for concern by top officials including Fed Chair Janet Yellen and New York Fed President William Dudley, may add to the debate over downside risks to the U.S. central bank’s 2 percent inflation target. These risks have contributed to policy makers’ cautious approach to tightening monetary policy this year following a decision in December to raise interest rates for the first time in almost a decade.

The median respondent to the New York Fed’s March Survey of Consumer Expectations expected inflation to be 2.5 percent three years from now, down from 2.6 percent in the February survey. In January, expected inflation three years ahead was 2.45 percent, marking the lowest level in data going back to June 2013.

Inflation expectations April 16
The New York Fed divides survey respondents into two groups based on a short aptitude test: high-numeracy and low-numeracy. Expected inflation among high-numeracy respondents, which tends to be more stable than that for low-numeracy respondents, declined to a record low in March.

The drop came despite a rise in expected gasoline prices. The median survey respondent in March expected the cost of gas to be 7.3 percent higher a year.

This is odd, since oil prices have stabilized and a consensus seems to be forming around the idea that inflation is about to pick up. Some talking heads are even wondering how the Fed will respond to the above-target inflation that’s coming. See Just how much of an overshoot on inflation will the Fed tolerate?

So what’s with all the pessimistic consumers?

Well, a data series from PriceStats (related to MIT’s Billion Prices project, I think) that measures a wide variety of prices in real time has the answer: Prices are actually falling faster than the official CPI number indicates, and have not picked up as oil has stabilized. In fact, the US has been in deflation for the past five months.

PriceStats inflation April 16

So it’s no surprise that people who are actually buying the stuff that’s falling in price would register this fact and answer surveys with deflationary sentiments. It’s also no surprise that central banks, which presumably see the same data, would be looking for ways to ease even further (Japan and Europe) or walk back their previous threats to tighten (the US Fed) — apparently in the hope that increasing the dose will cure the credit addiction.

This article is written by John Rubino of Dollarcollapse.com and with his kind permission, Gecko Research has been privileged to publish his work on our website. To find out more about Dollarcollapse.com, please visit:

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John Rubino: Imploding Pensions Take The Rest Of US Down With Them

By John Rubino, Mar 31, 2016

Imploding Pensions Take The Rest Of US Down With Them

It’s the same story pretty much everywhere: Cities and states promised ridiculously generous (by today’s standards) pensions to teachers, cops and firefighters, failed to sufficiently fund the plans and invested the money they did have very badly. And now the weight of the resulting unfunded obligations are crushing not just plan recipients but entire communities. Here’s a representative case:

Oregon PERS unfunded liability swells to $21 billion

(KTVZ) – This week, Oregon’s Public Employee Retirement System Board received an earnings report on the status of the PERS fund investment. The report said Oregon’s PERS fund fell by 4 percent in 2015, a loss of nearly $3 billion — and a Central Oregon lawmaker said that means major reforms are more urgent than ever.“The blow to PERS from the Moro court case left Oregon with an additional $5 billion in unfunded liability,” Sen. Tim Knopp, R-Bend, said Tuesday. “Now PERS is an additional $8 billion short of its target.”

In that ruling nearly a year ago, the state Supreme Court overturned the vast majority of the PERS reform cost-saving provisions enacted by the 2013 Legislature.

The current unfunded PERS liability now exceeds $21 billion, up from $18 billion last year, he noted.

PERS Communications Director David Crossley said while the PERS fund earned just over 2 percent last year, it did not achieve the “assumed savings rate” of 7.75 percent, so the liability increased by about $3 billion.

He noted that PERS had positive earnings, but lost value because it pays out about $3.5 billion in benefits a year.

PERS rates for school districts and local governments will rise in July 2017, Knopp said, forcing school districts to lay off teachers, reduce school days, increase class sizes, and cut programs like art and PE. Local governments will also have to make cuts to public safety and other critical services.

This combination of worse-than-expected investment returns and legal barriers to cost savings is playing out across the country. See Fitch downgrades Chicago after “worst possible outcome” in state supreme court pension reform bid.

What follows — “…forcing school districts to lay off teachers, reduce school days, increase class sizes, and cut programs like art and PE. Local governments will also have to make cuts to public safety and other critical services” — is also playing out in most states and cities.

And this, remember, is at the tail end of an epic bull market in financial assets. If pension plans aren’t fully funded now, they’ll fall into an abyss in the coming correction.

The result: everyone gets poorer. Or more accurately, everyone discovers that they were never as rich as they thought they were, and that the down escalator they’re on has a long way to go.

At the risk of belaboring the point, imploding pensions, like most other modern problems, can be traced back to easy money. Put a monetary printing press in the hands of government and the resulting corruption flows from Washington outward to every state capital and mayor’s office. With interest rates artificially low and inflation artificially high, generating 8% returns as far as the eye can see looks not just possible, but easy. So promising benefits based on high rates of return seems reasonable to elected officials anxious to buy labor peace. And once the Ponzi scheme is in place, there’s no way to turn it off without creating chaos.

The only solution (again at the risk of repetition) is to take the easy money program to its logical extreme and devalue the dollar by an amount large enough to make nominal pension benefits affordable. That’s functionally the same as honestly cutting benefits and will impoverish everyone who doesn’t own lots of real assets, but it will be easier to hide.

This article is written by John Rubino of Dollarcollapse.com and with his kind permission, Gecko Research has been privileged to publish his work on our website. To find out more about Dollarcollapse.com, please visit:

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John Rubino: How Stupid Do You Have To Be To Let This Happen?

By John Rubino, Mar 27, 2016

How Stupid Do You Have To Be To Let This Happen?

Europe is the birthplace of Western civilization and the source of most of the trends and bodies of knowledge that define modernity. The average European speaks several languages versus sometimes less than one for Americans. They are, in short, a well-schooled people with vast accumulated wisdom.

So how do we explain this: After World War II most European countries set up generous entitlement systems including government pensions designed to offer dignified retirements to citizens who had worked hard and paid taxes and obeyed the rules for a lifetime. BUT they didn’t bother putting anything aside for the inevitable — and mathematically predictable — retirement of the immense baby boomer generation. Here’s an excerpt from a recent Wall Street Journal article outlining the problem:

Europe Faces Pension Predicament

State-funded pensions are at the heart of Europe’s social-welfare model, insulating people from extreme poverty in old age. Most European countries have set aside almost nothing to pay these benefits, simply funding them each year out of tax revenue. Now, European countries face a demographic tsunami, in the form of a growing mismatch between low birthrates and high longevity, for which few are prepared.Europe’s population of pensioners, already the largest in the world, continues to grow. Looking at Europeans 65 or older who aren’t working, there are 42 for every 100 workers, and this will rise to 65 per 100 by 2060, the European Union’s data agency says. By comparison, the U.S. has 24 nonworking people 65 or over per 100 workers.

“Western European governments are close to bankruptcy because of the pension time bomb,” said Roy Stockell, head of asset management at Ernst & Young. “We have so many baby boomers moving into retirement [with] the expectation that the government will provide.”

The demographic squeeze could be eased by the influx of more than a million migrants in the past year. If many of them eventually join the working population, the result could be increased tax revenue to keep the pension model afloat. Before migrants are even given the right to work, however, they require housing, food, education and medical treatment. Their arrival will have effects on public finances that officials have only started to assess.

A Growing Mismatch
The pension squeeze doesn’t follow the familiar battle lines of the eurozone crisis, which pits Europe’s more prosperous north against a higher-spending, deeply indebted south. Some of the governments facing the toughest demographic challenges, such as Austria and Slovenia, have been among those most critical of Greece.

Germans, meanwhile, “are promoting fiscal rules in Spain and other countries, but we are softening the pension rules” at home, said Christoph Müller, a German academic who advises the EU on pension statistics. He pointed to a recent change allowing some workers to collect benefits two years early, at 63. A German labor ministry spokesman called that “a very limited measure.”

Europe’s state pension plans are rife with special provisions. In Germany, employees of the government make no pension contributions. In the U.K., pensioners get an extra winter payment for heating. In France, manual laborers or those who work night shifts, such as bakers, can start their benefits early without penalty.

Across Europe, the birthrate has fallen 40% since the 1960s to around 1.5 children per woman, according to the United Nations. In that time, life expectancies have risen to roughly 80 from 69.

In 2012, the Polish government launched a series of changes in its main national pension plan to make it more affordable. One was a gradual rise in the age to receive benefits. It will reach 67 by 2040, marking an increase of 12 years for women and seven for men. The changes mean the main pension plan now is financially sustainable, said Jacek Rostowski, a former finance minister and architect of the overhaul.

The party that enacted the changes lost an election in October, however, and a central promise of the winning party is to undo them. Recently, Poland’s president introduced a bill to reverse some of the measures. “You have to take care of people, of their dignity, not finances,” said Krzysztof Jurgiel, agriculture minister in the current Law & Justice Party government.

The implication is that Germany, Italy, Spain, France et al are functionally bankrupt, apparently (amazingly) by choice. They saw the avalanche coming decades ago and instead of getting out of the way or reinforcing their chalets, simply sat there watching the snow roll down the mountain. It will be arriving shortly, and they’re still debating what — if anything — to do about it.

In fact the only thing that can be reasonably described as preparation is the decision to ramp up immigration. This might have worked if Europe had chosen more compatible immigrants, but that’s a subject for a different column. For now let’s focus on insanely stupid choice number one, which is to offer entitlements with no funding mechanism other than future tax revenue. If an insurance company or corporate pension plan did something like that its executives would be led away in handcuffs — rightfully so, since the essence of such deferred-payout entities is an account that starts small and grows to sufficient size as its beneficiaries begin to need it.

So what the Europeans have aren’t actually pensions, but a form of election fraud designed to give an entire generation of politicians the ability to offer free money to voters without consequence.

Soon, a whole continent will be left with no choice but to devalue its currency to hide the magnitude of its mismanagement. The math will work like this: devalue the euro by 50% while raising pension payouts by 20%, thus cutting the real burden significantly — while taking credit for the nominal benefit increase at election time. It might work, based on the level of voter credulity displayed so far.

Now here’s where it gets really interesting. The US “trust funds” that have been created to guarantee Social Security and Medicare are full of Treasury bonds, the interest on which is paid from — you guessed it — taxes levied each year on US citizens. So the only real difference between the European pay-as-you-go and US trust fund models is that the former is more honest.

This is why gold bugs and other sound money people are so certain that precious metals will soon be a lot more valuable. The pension numbers are catastrophic everywhere and the reckoning that was once merely inevitable is now imminent. Europe is a little further along demographically and so might have to devalue its currency first, but $80 trillion in unfunded Medicare liabilities can’t be denied. We’ll be following along shortly.

This article is written by John Rubino of Dollarcollapse.com and with his kind permission, Gecko Research has been privileged to publish his work on our website. To find out more about Dollarcollapse.com, please visit:

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John Rubino: Well That Didn’t Work

By John Rubino, Mar 18, 2016

Well That Didn’t Work

The Bank of Japan and European Central Bank eased recently, which is to say they stepped up their bond buying and/or pushed interest rates further into negative territory. These kinds of things are proxies for currency devaluation in the sense that money printing and lower interest rates generally cause the offending country’s currency to be seen as less valuable by traders and savers, sending its exchange rate down versus those of its trading partners.

This was what the BoJ and ECB were hoping for — weaker currencies to boost their export industries and make their insanely-large debt burdens more manageable. Instead, they got this:

Yen March 16

Euro March 16

Both the yen and the euro have popped versus the dollar, which means European and Japanese exports have gotten more rather than less expensive on world markets and both systems’ debt loads are now harder rather than easier to manage. And it gets worse: Japan’s yield curve has inverted, meaning that long-term interest rates are now lower than short-term rates, which is typically a harbinger of recession. Here’s a chart from today’s Bloomberg:

Japan yield curve March 16

This sudden failure of easy money to produce the usual result is potentially huge, because the only thing standing in the way of a debt-driven implosion of the global economy (global because this time around emerging countries are as over-indebted as rich ones) is a belief that what worked in the past will keep working. If it doesn’t — that is, if negative interest rates start strengthening rather than weakening currencies — then this game is over. And a new one, with rules no one understands, has begun.

This article is written by John Rubino of Dollarcollapse.com and with his kind permission, Gecko Research has been privileged to publish his work on our website. To find out more about Dollarcollapse.com, please visit:

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