The Rundown on Runaway Inflation in One Chart
Despite a dramatic increase in the Fed's balance sheet, the Producer and Consumer Price Indexes are subdued
Famed radio broadcaster Earl Nightingale, who was the voice of Sky King on the radio and later went on to become a motivational speaker, described what he believed to be the biggest sin a public speaker could commit.
It's not stumbling over words or going overboard with warm-up jokes or speaking too long. The greatest sin a public speaker can commit is to be uninteresting. What's more, the failure is related much more to the speaker's lack of preparation than to the topic. Nightingale argued that even the history of the fork could become an interesting talk.
We believe our economic analysis is made even more interesting and insightful by using our own unique charts. They reflect our independent analysis, and they are different from what you find in other financial publications.
Robert Prechter created this chart for a speech he gave to the Market Technicians Association in April 2013, which is reprinted in the July-August Elliott Wave Theorist. He used the chart to address the often-voiced fear that runaway inflation is just around the corner because, via quantitative easing, the Federal Reserve has been manufacturing new banknotes and swapping them for the debts of others - a process that inflates the supply of dollars.
The Fed has been inflating the supply of dollars at a stunning 33% annual rate over the past five years. It plans to continue doing so at least through the end of this year and has kept open the possibility that it will do so indefinitely. This is the policy upon which those predicting runaway inflation are basing their arguments. With this dramatic a rise, it's no wonder investors expect inflation and have aggressively positioned for it.
Look just about anywhere else, however, and you will see subtle evidence of deflationary pressures. Given knowledge only of the Fed's inflating, many people would expect the Producer and Consumer Price Indexes to be rising at a rate of 33% annually. But, as you can see in [the chart], the PPI's annual rate of change is stuck at zero and the CPI has been rising at only a 2% rate.
-- The Elliott Wave Theorist, July-August 2013
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This article was syndicated by Elliott Wave International and was originally published under the headline The Rundown on Runaway Inflation in One Chart. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.