Disinflation

So.

I started the previous blog subject under the impression that the real-estate apocalypse was just around the corner... that the very low interest rates we observed last fall were only the result of government intervention in the market, and as soon as the government stopped intervening, rates would increase.

I clearly was off the mark. Interest rates are lower than they have ever been.

So, I've shut my trap on that old topic. Mostly, I'm watching Krugman's blog and CalculatedRisk. I'm kinda impressed at two things about Krugman.

1) He's just been right so frequently over the past two years; like, dead on the money right.

2) People still seem to shoot for the mean between his suggestions and the people who have been wrong for so long who have been saying the opposite and are still saying the opposite. It's like, you have two crystal ball gazers, one saying "go west" and one saying "go east" and so you head south -- except, the guy saying "go east" wants you to ignore the fact he's been wrong in every prediction he's made up until this point.

It's wild.

I mean -- I was one of those crystal ball gazers saying "EAST" and damn if I didn't screw the pooch on that one.

So, for a long time, Krugman has been warning that we're in an environment that will produce deflation. And the symptom before deflation is "disinflation." That is, inflation expectation decreases. People have to predict what inflation will be, and when they predict lower and lower inflation, it actually turns in to lower and lower inflation, until you hit the 0 mark, and then it turns into greater and greater deflation in a pretty nasty vicious cycle.

So

CPI numbers came out this week and they look a lot like disinflation. It's been going on for a while, but the point of these numbers is simply that it's still going on. It's not a fluke. It's what Krugman predicted. Calculated risk has the graph.

disinflation graph