Inflation ending soon, CPI may be negative in a year

Inflation ending soon, CPI may be negative in a year. By Steven Saville.

If the Fed were to stick with its balance-sheet reduction plan then by next February the year-over-year rate of US money supply growth probably would be negative, that is, the US would be experiencing monetary deflation.

CPI lags true money supply (TMS) by a few months.

Because nothing disastrous has happened to the overall US economy and the broad stock market YET (at this stage, the disasters have been confined to the economic/market sectors where speculation was the most manic), the Fed almost certainly will stick with its balance-sheet reduction plan for at least a few more months.

This means there is a high probability of the US experiencing monetary deflation during the first half of 2023.

What would be the likely ramifications? …

  • Declining money-supply growth hits the most egregious bubble activities first. For example, many of the most popular stock market speculations of the 2020-2021 bubble period already have lost more than 90% of their market values and the ‘crypto world’ is immersed in a collapse that probably isn’t close to complete. …
  • A severe economic downturn during 2023 that possibly extends into 2024 …
  • the US economy could experience price deflation, as indicated by the year-over-year rate of CPI growth dropping below zero, during the final quarter of 2023.
  • This combination will, we suspect, lead to a substantial rebound in the Treasury market and a rise in the US$ gold price to new all-time highs within the coming 12 months.