International Inflation Cycles Sync Up

Jon Economy

My friend Lakshman Achuthan, Co-Founder & Chief Operations Officer of the Economic Cycle Research Institute (ECRI), has done some really interesting work on international inflation cycles, and in today’s Outside the Box he shares it with us. This is a special treat – ECRI does not normally make its material available outside of its client base. I am truly grateful that he allows me to share this. Lakshman will be joining us at SIC this week in Orlando, to the great benefit of the attendees.
It turns out that inflation volatility has been greatly dampened in the 11 OECD (advanced) economies in the 21st century, as compared to the late 20th century: It’s now only about a quarter of what it was then. Additionally, the domestic inflation cycles of these countries have increasingly come into sync. These two trends have made it possible for ECRI to devise a leading index of global inflation cycles that offers earlier and more accurate forecasts of cyclical turning points in international inflation.
In concluding this short but groundbreaking piece, Lakshman adds,
The synchronization of international inflation cycles highlights the importance of global factors in assessing domestic inflation prospects. Our analysis underscores the 21st-century reality that the timing of inflation cycles may be beyond the control of any individual central bank. Yet this very development makes it possible for ECRI to provide even earlier signals of peaks and troughs in the inflation cycle.
Lakshman’s piece runs with an argument that my friend John Vogel wrote about this morning, highlighting another piece of research. I’ve been arguing for years that the world is basically in a long-term deflationary trend, despite all the monetary intervention and money printing. It’s a bit difficult to measure, but the cost of producing goods is dropping. Which means that the cost of living will continue to fall – at least as far as purchasing goods is concerned (as opposed to buying services like healthcare and education). As John writes (somewhat controversially):

This post was published at Mauldin Economics on MAY 24, 2017.