Saturday, November 01, 2008

Roubini: Global Stagflation in sight

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Greetings from RGE Monitor!

The financial wildfire has turned around the stagflationary trends seen earlier this year into a vicious cycle of global deflation in debt, assets, wages, and goods. Headline consumer inflation has peaked in most of the developed and emerging world, except in places where food/fuel subsidies were recently rolled back or post-Q3 data are still unavailable. According to the IMF’s October World Economic Outlook, the world’s average consumer prices have increased 6.2% y/y Q2 2008. JPMorgan expects world CPI inflation to slow to 2.6% y/y Q2 2009. Lower commodity prices subdued headline inflation and are expected to continue doing so on slackening global demand. Core inflation has yet to show a significant decline but a feedback loop of debt deflation, asset deflation, commodity deflation, wage deflation, and slower global growth will likely lead to flat or lower headline and core consumer and producer prices in Q4 2008 through 2009. But in the short- to medium-term, stag-deflation seems the most likely scenario for the world economy.
I just like the "Greetings! You're running headlong to your own doom!" format.

1 comment:

Anonymous said...

It's weird. Oil is still crazy expensive compared to a year or so ago. And yet my inflation-linked bonds are tanking almost as fast as the Dow.

I guess its a continual push-me pull-me between declining growth, and declining energy availability. It just seems like the latter is more the driving force these days. So unless the Dow hits 6500, I figure that TIPS are still long-term gold.