News

A Perspective on the "Global Deflation Trade"

But, for the first time since July 2014, the U.S. registered a 2% headline inflation in December 2016.

That means the deflation trade is now behind us, according to two asset managers for a major global financial institution.

Read this excerpt from a Feb. 5 Business Insider article:

What might seem like an unceremonious milestone [2% U.S. headline inflation] is actually a symbolic coda to one of the most tumultuous periods in recent history; an end to the so-called "global deflation trade".
The twenty-nine consecutive months that U.S. Headline CPI spent below 2%, and at times below zero, embodied the thrust of global macro markets over that time period. A period in which the world witnessed a historic decline in commodity prices, a rapid tightening of financial conditions, a collapse of inflation expectations, nominal yields and term premium as well as broad skepticism of monetary policy.
While much of the developed world still suffers from "lowflation", the stabilization of commodity prices and headline inflation has been cathartic for global markets and central banks.
With more time to reflect on the aftermath of the 2014-2016 collapse of commodity prices and the subsequent "deflation trade", it becomes clearer just how destructive the ~76% decline in crude oil prices was.
he deflation trade caused developed market terminal policy rates to decline as a result of sharply lower inflation expectations, trapping central banks at the zero lower bound despite historically easy monetary policy.
With steadily rising energy prices has come a sharp increase in year-on-year rates of headline inflation, which have converged with core inflation for the first time since 2014, signaling that the deflationary shock has run its course.

But has the threat of deflation really passed? Get our take by reading our free 11-page report: What You Need to Know NOW About Protecting Yourself from Deflation.

Also, if you'd like to read the entire Business Insider article, you may do so by following the link below:

http://www.businessinsider.com/deflation-has-disappeared-in-the-us-2017-2