The conventional interpretation of “reflation” in the second half of 2016 was that it was simply the opening act, the first step in the long-awaiting global recovery. That is what reflation technically means as distinct from recovery; something falls off, and to get back on track first there has to be acceleration to make up that lost difference.
There was, to me anyway, a lot of Japan in it, even still if “globally synchronized growth” was to prove anything more than a marketing pitch or bumper sticker slogan it was always going to speak Chinese. Economic gravity being what it is, without China’s vast input into the anticipated healing process there just couldn’t be anything more than we’ve seen previously (2014).
As reflations tend to go, they start first with markets and market prices. In economic terms it’s quite simple: commodities. If the world needs to use more of them because everything is getting so much better, they will rise and rise sharply before it ever happens. And if reflation is true to the term, they will keep on going so as to at least get back to where they were before, if not surpass prior highs.
The second half of 2016 passed the first burden; commodity prices rose sharply which fed into the worldwide inflation story that we know very well in 2018. In China, it was reflected almost immediately by producer prices.
The Chinese PPI had contracted for 53 straight months. Going all the way back to April 2012 and the 2012 slowdown, that deflationary trend mirrored everything that was wrong with the global economy that Economists had either ignored or didn’t know existed.
For September 2016, the PPI for the first time in almost five years turned positive. It was, seemingly, an important turning point and was widely interpreted in that fashion. Psychology of markets and economy tends to place a great deal of importance, too much, on round or even numbers, and always a change of sign. People think in linear, straight line terms.
Leave A Comment