Deflation - Gauging The Risk
Chart and commentary courtesy of:
Contrary to the Federal Reserve's fears, the widely respected Economic Cycle Research Institute contends that U.S. deflation is "not a clear and present danger." We tend to agree. First, if deflation was imminent, then the stock market would be falling through the floor. Second, protracted deflation does not occur without contracting money supply growth (which is instead soaring). And third, the published inflation numbers would be much higher if the CPI was calculated in the manner of the 1970s - when median family home prices were included.
The 40-year low interest rates has sent home prices higher, and rental inflation lower (as new home buyers leave the rental market). And which is included in the CPI today? You guessed it: rental equivalent costs!