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Dripping into Inflation

Price appreciation, commonly known as inflation, is a bad omen for almost every stock investor that has not put the requisite effort into protecting against inflation.  Could higher inflation be on the horizon?  Recent inflation measures across the globe suggest we may be in a calm before the storm period.  Overall, global inflation readings have been relatively moderate, with most inflation readings across the globe less than 2%.  There are no signals yet that this is going to change in 2019. 

The benign inflation measures suggest that we may be at a calm before the storm period.  

Are investors complacent about the potential inflation risks on the horizon?

Inflation Around the World
 

Inflation in the U.S.
Let’s take a look at inflation around the world, starting with the United States.  The most recent measure of inflation came in at 1.9% year-over-year.  That’s about as benign of an inflation figure as it can get.  If we were to classify the inflation experience since 1992 into color-coded groups, the recent 1.9% data point suggests we’re in the orange group, about equal to the average we’ve seen over the past 25 years.

It’s hard to argue that today’s inflation rate in the U.S. is anything but benign.

 

Inflation in Germany
Moving over the other side of the Atlantic, here’s the inflation picture in Germany.  Overall, inflation is Germany is relatively low at 1.3%.  This is down from a recent of 2.3% in October 2018.  
As with the U.S., inflation in Germany is relatively benign.


 

Inflation in the U.K.
Moving over to the Brexiting U.K., inflation is at 1.8% and trending lower.

The U.K. inflation picture prods the same question as does the picture out of the U.S. and Germany – Are we being too complacent about potential inflation rushes?    

 


Inflation in the Broader Euro Area
Germany and the U.K. provide a fairly good view of the inflation picture in the broader Euro area.  Euro area inflation is at 1.29%. Benign by almost any interpretation.  
 

Inflation in Japan
Let’s take a look at an Asian country’s inflation.  Inflation in Japan is a paltry 0.20%.  Japan has been trying to generate inflation for two decades, with little success.  
It’s hard to generate inflation with an aging and declining population.


 

Are We Being Too Complacent About Inflation Risks?
Inflation in the U.S., the U.K., Germany, the broader Euro area, and Japan suggest that perhaps there’s not enough concern about a rush of inflation.

With inflation readings so benign, it’s hard to see global inflation heading much lower.  The risk on the inflation front is certainly on the upward side.

All the global economy needs is a little bit of a boom to juice up the inflation pressure, and perhaps that’s what we’ll get in 2021.