Oliver's Insights - Inflation, deflation, or "lowflation"?
9 August 2010 - This note looks at the outlook for inflation globally, given that investor concerns have recently been swinging wildly from worries about inflation to worries about deflation. The surge in the wheat price has only added to the confusion.
The key points are as follows:
- It is hard to see the surge in wheat prices over the last two months having anything other than a minor temporary impact on the rate of inflation.
- More fundamentally, thanks to continuing excess capacity in major industrialised countries, deflation is more of a risk than a surge in inflation.
- This means continuing low global interest rates and bond yields for some time to come.
- Deflation is less of a threat in Asia and Australia.
