Core Consumer Price Index points to accelerating deflation when correlated with commodity prices
Special Correspondent
Jan. 18, 2007

Analytic models and quantitative models are manifesting accelerating deflation. The stagflation in the economy has changed into deflation. The bond market is quiet because the deflation that is encapsulating the economy is somewhat different from traditional ‘textbook’ deflation. The deflation is sector specific. It will cause decrease in US imports and hurt the Asian economies like Japan, India and China. Japan understands that. The Bank of Japan decided not to raise the rates.

As Asia gets depressed the central banks of Asia will stop funding the bond purchases. The bond yields can actually rise to 8 or 9% in spite of deep deflation and negative growth in US.

The bond market performs well and yields collapse in any economy where trade surplus exists. That is exactly what happened in Japan in the last fifteen years. But with trade deficit this high, Bond market will actually collapse as deflation hits the main streets and economy gets deeply depressed.

Core Consumer Price Index points to accelerating deflation when correlated with commodity prices

Core Consumer Price Index points to accelerating deflation when correlated with commodity prices
Special Correspondent
The deflation is sector specific. It will cause decrease in US imports and hurt the Asian economies like Japan, India and China. Japan understands that. The Bank of Japan decided not to raise the rates.
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