After years of fighting against the forces of deflation, many areas of the world, including the US, are experiencing a rebound in inflation and growth prospects. The promise of rising prices and accelerating economic growth are causing asset prices to head higher, but how long will this phenomenon last?
There’s no question that things have gotten a lot rosier over the past few months. The chart below shows inflation levels rising in the US, the EU, and Japan.
Much of this increase has come on the back of rising commodity prices, and particularly oil. When oil plunged during 2014 and 2015, it took many segments of the global economy with it. Deflationary pressures increased and central banks were forced to up their antes with lower rates and additional bond purchases.
Then came the bottom in early 2016. Once oil found a bottom in the mid-20’s, it turned higher and has been taking the entire commodity complex with it (chart above). Our current semi-stable ~$50 oil prices have led to rising inflation and a modest uptick in expected growth.
This post was published at FinancialSense on 02/14/2017.
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