Pete Kendall's Socio Times: A Socionomic Commentary

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Inflation's Largest Surge in 25 Years
By: Pete Kendall, October 14, 2005
With deflation’s profile about as low as it can go, it is prime time for a full-scale version to take hold.
The Elliott Wave Financial Forecast, April 2005
Today's Drudge Report headline shows how completely fears of inflation have penetrated the public psyche.

Meanwhile deflation is completely off the radar screen of the media. This chart updates the original "Deflation's Media Share" chart which ran in the April issue of the EWFF. The last bar on the chart shows the share of references devoted to deflation in the N.Y. Times, L.A. Times, The Wall Street Journal and Christian Science Monitor for September. Checking Proquest through the first half of October, we find just two references to deflation. One, from a WSJ story about a Japanese economic recovery, says Japan "will keep recovering toward the end of deflation" and  the other is a reference to the difference between the current era and the deflationary scare of 2001/2002: "The specter of higher inflation comes in sharp contrast to 2001, when the primary worry of Fed Chairman Alan Greenspan and other central bank policymakers was not inflation but its polar opposite: deflation." Since both observe an absence of a potential for falling prices we can say that deflation's media share hit 0% in the first half of October. Deflationary worry has been effectively extinguished, a perfect set-up its big entrance in the weeks ahead. 
Additional References

EWFF, April  2005
According to Proquest’s database of six major U.S. newspapers, the number of stories in March that covered deflation declined to 2, compared to 139 inflation articles. Deflation’s 0.7% share of the coverage is minuscule compared to its peak share of over 40% back in May 2003, when the Fed noticed deflation’s burgeoning presence and made it a major media preoccupation. Notice [in the chart in the commentary section], however, that even at its height, deflation’s press coverage never reached 50%, an equal share relative to inflation. The bar chart shows how deflation’s media profile has declined to a level that is almost nonexistent in recent months. The 0.7% share is the lowest of recent times. In fact, even as powerful deflationary forces have gathered in recent months (see this section in the March 2005 EWFF), a major inflation scare is playing out in the papers. The latest issue of Time magazine asks, “Is Inflation Back?” “Inflation fears are mounting across the globe,” says Monday’s issue of The Wall Street Journal. The Fed also fears inflation now.

Because deflation is a monetary phenomenon rather than a freely-traded market, it won’t progress in a strict contrary fashion. At some point, it will become a self-reinforcing psychology that intensifies as consumers, lenders and borrowers respond to dwindling demand and expectations of lower prices by cutting back. In its initial phases, however, deflation tends to wax and wane as fears about its potential do the opposite, as happened back in 2002 and 2003. As deflation worked its way into the headlines for the first time in the lives of many consumers, the deflationary pressure, as measured by rising CRB, CPI, PPI and GDP levels, was actually receding. Now, the situation is reversed. With deflation’s profile about as low as it can go, it is prime time for a full-scale version to take hold.

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