Deflation Delusion Continues as Economies Trend Toward High Inflation, Part 1

Editor's Note: This is Part 1 of a two-part series. For Part 2, click here. The full article was originally posted on The Market Oracle.


For well over a year, delusional deflationists from the Bank of England MPC to the mainstream press have pushed the mantra of ongoing debt-deleveraging deflation everywhere; everywhere, that is, except where it counts, i.e. the actual inflation indices, where inflation is on the rise across the world, as illustrated in the UK by the persistent failure of the Bank of England to control UK inflation, which remains above the bank's CPI 3% upper limit. Even Greece, which really is in a depression, is experiencing inflation above 3%, while the US CPI continues to inflate at a more modest 1.2%, as summarised below for key world economies.

Global CPI Inflation Rates
 

• India -- 13.7%
• Argentina -- 11.2%
• Russia -- 5.5%
• Brazil -- 4.6%
• China -- 3.3%
• UK -- 3.1%
• Australia -- 3.1%
• Eurozone -- 1.7%
• USA -- 1.2%
• Japan -- (-)0.7%

This is leaving aside the fact that the official inflation indices tend to under-report real inflation rates, as the methodologies have been manipulated lower over the decades so governments can continue to stealth tax the population. For instance, UK inflation, as measured by the RPI, which is the recognized measure for UK inflation, is at 4.8%, with my own real inflation rate measurement coming in at 6%. The US CPI of 1.2%, when measured on the basis of the EU methodology that ignores Bush and Clinton tweaks, comes in at 2.4%. Then we have Mr. Shadowstats, who reports US CPI inflation as being at 8.6% rather than the official 1.2%.

I warned of imminent UK and global inflation mega-trend way back in November 2009, as deflationists fell into the debt-deleveraging deflation trap. That red herring completely missed the big picture I attempted to elaborate upon in the inflation mega-trend ebook of January 2010 that contained the specific trend forecast for UK CPI inflation of December 2009, as illustrated by the below graph, against which the Bank of England has continually issued statements that high inflation was just temporary and would fall throughout 2010 -- the reasons for which I touched on recently in The Real Reason for Bank of England's Worthless CPI Inflation Forecasts.

UK Inflation July 2010


Debt-deleveraging deflation completely ignores the fact that we're not living in the 1930s, but in a globalized world economy that's seeing the convergence of real GDPs -- where the developing world is eating up the world's resources at a faster pace than the West is cutting back on consumption, thus driving inflation higher while the West is engaged in competitive currency devaluations in an attempt to generate nominal GDP growth, which has highly inflationary implications.