If there is one thing guaranteed to strike fear into economic policy makers, it is mention of the dreaded D word. Deflation occurs when prices in general fall for a prolonged period of time and its spectre gives central bankers nightmares because deflation is so hard to reverse and its effects can be so deadly.
The rapid growth in the Fed’s M2 measure of money supply is a key factor behind reflationary hopes. Theory might suggest this heralds a spike in inflation, but you can’t look at money supply in isolation – it is critical to also consider the velocity of money.
He is also co-fund manager, alongside Adam Darling, of the Jupiter Corporate Bond Fund . Ariel Bezalel started his career at Jupiter and has been a member of the Fixed Income team since 1998 and a fund manager since 2000. He is currently Head of Strategy, Fixed Income and manages the Jupiter Strategic Bond Fund and the Jupiter Dynamic Bond fund . Ian Cowie shares his experiences of investing through market highs and lows. David Prosser urges you to take more time to consider the use of your annual ISA allowance. Imagine a world where the price of things kept going down… sounds great, right? We use analytics cookies so we can keep track of the number of visitors to various parts of the site and understand how our website is used.
- If cost of living adjustments are already a part of the sourcing contract, there’s no need to worry–if they were carefully constructed.
- He is currently Head of Strategy, Fixed Income and manages the Jupiter Strategic Bond Fund and the Jupiter Dynamic Bond fund .
- November’s price drop is the first time supermarket prices have been in annual deflation since September last year and is the largest monthly deflationary level seen since December 2017.
- It is expected that this will change since extended low-interest rates typically result inexpansionary fiscal policy.
The European Central Bank expects the eurozone’s economy to contract by between 5% and 12% this year with a medium scenario of -8%, according to ECB President Christine Lagarde. France fell into recession at the end of April, and Italy followed suit in May. EGB Engineering is a UK based company with expertise in the field of renewable power and propulsion. We provide quality engineering products and services to OEM and end-user clients from various industries such as aerospace, energy and nuclear. “IEEFA also expects the IEA to continue to be surprised every year over the coming decade at the speed of ongoing technology-driven deflation and hence the rate of uptake of renewable energy,” the report states. The report seems to contrast the forecast presented by the International Energy Agency in May, in which they predicted a setback for the technology-driven trends of deflationary renewables due to Covid-19.
Supermarket Prices Fall Into Deflation For First Time Fourteen Months
41.2% to 500p after news emerged its founding partners have teams with private equity player Blackstone to bid to take it back into private hands. Its retail partner Marks & Spencer was also down 4.4% to 136.8p on concerns over Ocado’s future retail growth. The exception was Ocado, which fell 7.2% to 2,159p despite upping its full year profits expectations as weaker growth in order numbers and worries over a mitigation in growth when normality returns to society in 2021 hit the shares.
It shows that the production, construction and agriculture industries are most likely to be impacted by double deflation, all else the same. It is also helpful to consider how the structure of the production process for industry has changed over time. For instance, these three industries have all experienced an increase in the relative size of intermediate consumption. In contrast, this is not the case for most services industries – the only exception is real estate. This points to how industry-level structural changes in the respective production processes need to be looked at to understand how double deflation impacts industry-level volume GVA. GVA growth is higher across all periods, most pronounced in the underlying post-crisis trend of annual GVA growth.
It covers everything from a new Cold War to the likely impact of the post-crisis surge in government spending.
Oil prices were lower at the end of the Asian day, with Brent crude last down 1.36% at $55.23 per barrel, and West Texas Intermediate losing 0.86% to $51.79. “We reckon commodities and processing inflation picked up to around 1.4%, from deflation of 1.6% in November, leaving manufacturing goods still in deflation,” said Pantheon Macroeconomics chief Asia economist Freya Beamish.
McPherson agrees it pays to be mindful of deflationary forces, including demographics, debt and productivity, which have held inflation down for a long time, and failure of central banks to create above-target inflation in the past decade. Fairview Investing consultant Gavin Haynes thinks there is potential for inflation to spike but the uncertainty of the economic environment means it is impossible to predict whether inflationary or deflationary forces will dominate. But he does accept the presence of structural deflationary pressures that could easily lead to a deflationary backdrop in the western developed economies. Khalaf also notes there are deflationary forces in the market, in particular unemployment is set to rise, while long-term secular trends, including technological advances and an ageing population, continue to weigh down on price rises. Smith & Williamson MPS co-manager James Burns says inflation was effectively off the table for much of 2020, as the impact of the pandemic and subsequent lockdowns meant many drivers of inflation went into reverse. Many analysts say that there will be more deflation post-COVID-19 since unemployment rates will soar, and demand will generally be weak.
As such, we recommend that this is seen as an initial research piece and that these experimental estimates are treated with some caution. These estimates are a reflection of the work we still need to carry out, as it is of our work so far.
Forget Inflation Its Deflation Time.
This compares with the official estimates of a decline of 7.9% for these years. This not only reflects that this is based on a wider range of annual surveys and administrative information, but it is also recording the correct concept of GVA rather than turnover as a proxy indicator. This also means that at industry level, the current price and volume relationship is now preserved, which historically has not been the case.
Table 1 shows the average GVA growth for the three periods that relate to the pre-crisis years , the period of the financial crisis and the post-crisis years . It also provides information on the size and direction of the impacts compared with the official estimates, highlighting how these not only vary by industry but also over time. There is more volatility for volume GVA growth for most of these industries over the period 1998 to 2018.
This in turn has helped identify numerous theoretical and practical challenges in the compilation of UK gross domestic product estimates. The impact to the manufacture of textiles, wearing apparel and leather products industry not only reflects that of changes to the clothing deflator. There are relatively large imbalances in this industry, which have been reflected in how balancing adjustments have been applied to this industry. In these experimental figures, the headline estimate of GDP will be largely unaffected by how we are implementing double deflation. This is by construct because we have chosen to continue to lead the volume estimates of GDP on the expenditure approach for the balanced years – that is, the years for which the SUTs have been compiled, which now covers up to and including 2018. This is because it allows the volume estimates to rely on the more extensive use of higher-quality Consumer Prices Index deflators. If double deflation is carried out in a supply and use tables framework, then this is carried out a lower-level product level for every industry, as is the case for these experimental estimates.
Good financial planning relies on being up to date with the latest news and information from relevant wealth management companies and the site features a wide range of content from highly regarded financial institutions. Supermarket price inflation escalated to its highest level for five months in December as coronavirus restrictions and the UK’s imminent exit from the EU reversed deflationary trends in grocery.
During the “closed” years – that is, the periods subject to SUTs balancing – the volume estimates of output are aligned with the expenditure measure of GDP, reflecting the higher-quality consumer price deflators used. The adjustments to bring the lower-level industry GVA into line are made proportionally over the services industries.
One of the most commonly asked questions by subscribers is how to find details of my open traders. In an effort to make it easier I will simply repost the latest summary daily until there is a change. Veteran subscriber might remember the initial hoopla about the promise of 3D printers in 2012 and 2013. Our emails are designed to be topical and engaging, however if you don’t like what we send, you can unsubscribe at any time. Harry Richards joined Jupiter in 2011 from university and has been a member of the Fixed Income team since January 2013. He supports Ariel Bezalel as a fund manager on the Jupiter Strategic Bond Fund and Jupiter Dynamic Bond fund .
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Figure 10 presents the percentage of telecommunication services that are consumed by each industry. Aside from others within the information and communication industry, those most impacted include finance and insurance services and gambling and betting services . All else the same, this would have lowered the volume GVA growth for these industries. One example of how this has been carried out in practice is the manufacture of computer, electronics and optical products.
Be it before or after salary increases, product news, tax changes, legislation or regional efforts. In the short term, inflationary pressures may fluctuate but as investors who seek to balance risk and reward, we look to longer term trends.
This will help ensure a holistic approach to data quality takes place to inform the estimates and therefore facilitate a more consistent application of balancing adjustments and more plausible implied production deflators. Another feature to consider in these experimental estimates is that we have incorporated broader changes to how the balancing of current price and volume estimates of GDP in the SUTs framework has been undertaken for these experimental estimates. In recent years, there has been progress in how we produce GDP estimates in the UK, including a view to improve the coherency and consistency of the UK National Accounts. The International Monetary Fund provides further information on how volume GDP estimates are produced in the G20 countries.
The supply chain typically responds by releasing more goods into the market in a push to jog the weaker demand. But Covid-19 has also brought with it some powerful new deflationary forces, including the fallout in commercial real estate. There has also been a collapse in global travel and tourism, which represents as much as 10% of global GDP.
But they have seldom had to worry about inflation and deflation at the same time, at least until now. For we appear to be in a strange new world where for every analyst arguing that inflation poses a serious threat, you can find another arguing the greatest danger comes from deflation. Wells notes wealth destruction from higher inflation is not limited to bond investors as equities also struggle in such an environment. His preference is to favour shorter-dated bonds, asset-heavy equities and real assets – “the asset class losers of the past decade”.
“In fact, left to the invisible hand of free markets, the spectre of deflation that haunts developed market central bankers would make itself felt,” he says. Will the COVID-19 crisis lead to higher inflation or deflation in 2020 and beyond? With the leading economic experts coming up with varied opinions and projections on the overall impact of the pandemic, the jury is clearly still out. In this scenario, it is expected that demand will ultimately lag behind the supply capacity; at this point, the dynamics should drive down the commodity prices.