Real Vision founder: High inflation is history and could be negative in 18 months

22-08-13 14:18

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By Raoul Pal, founder and CEO of Real Vision

Kxp, BlockBeats

As things stand, inflation is moribund.

My survey yesterday showed that people are very concerned about the stickiness of inflation and there are signs that the tide of inflation has faded. One argument is that commodity inflation is here to stay, but even if that is the case for the next few years, that is not clear today.

The problem is most acute in oil, where inflation was 104% in March; today it is 26% and falling. I expect oil inflation to be more negative next year on a year-on-year basis.

It's the same story with gasoline:

The picture is relatively good for gas (especially for EU gas, apparently). But if gas prices stay near that level, the rate of growth will also taper off.

Copper prices have fallen sharply and I expect the year-over-year rate of change to remain depressed for some time. But in the long run, prices will become more stable in the next cycle.

Contrary to popular belief, wheat is now actually showing negative year-on-year growth.

Corn prices have been positive, but based on previous years, they should soon turn negative.

Baltic Dry freight rates have fallen sharply and will continue to fall over the same period in the future.

Global container rates have also fallen.

The era of high commodity inflation is a thing of the past, and sticky inflation in rents and mortgages are lagging indicators of how the economy is changing. But as the economy slows, sticky inflation should ease.

I think inflation will be negative in 18 months. As in 2008, the year-over-year change will get worse in the following year.

Even if the Fed uses lagged data, bond prices are still wrong. The two - and ten-year exchange yield curves have seen their steepest declines since records began.