CMP Associates Regulation Blog

ESV Stagnation of Real Disposable Income. Table ESV-1 provides the data required for broader comparison of the cyclical expansions of IQ1983 to IVQ1985 and the current one from 2009 to 2012. First, in the 13 quarters from IQ1983 to IVQ1985, GDP increased 19.6 percent at the annual equivalent rate of 5.7 percent; real disposable personal income (RDPI) increased 14.5 percent at the annual equivalent rate of 4.3 percent; RDPI per capita increased 11.5 percent at the annual equivalent rate of 3.4 percent; and population increased 2.7 percent at the annual equivalent rate of 0.8 percent. Second, in the 11 quarters of the current cyclical expansion from IIIQ2009 to IQ2012, GDP increased 6.7 percent at the annual equivalent rate of 2.4 percent; real disposable personal income (RDPI) increased 2.5 percent at the annual equivalent rate of 0.9 percent; RDPI per capita increased 0.3 percent at the annual equivalent rate of 0.1 percent; and population increased 2.1 percent at the annual equivalent rate of 0.8 percent. Real disposable personal income is the actual take home pay after inflation and taxes and real disposable income per capita is what is left per inhabitant. The current cyclical expansion is the worst in the period after World War II in terms of growth of economic activity and income. The United States grew during its history at high rates of per capita income that made its economy the largest in the world. That dynamism is disappearing.

Table ESV-1, US, GDP, Real Disposable Personal Income, Real Disposable Income per Capita and Population in 1983-85 and 2007-2011, %

	# Quarters	∆%	∆% Annual Equivalent
IQ1983 to IVQ1985	13
GDP		19.6	5.7
RDPI		14.5	4.3
RDPI Per Capita		11.5	3.4
Population		2.7	0.8
IIIQ2009 to IQ2012	11
GDP		6.7	2.4
RDPI		2.5	0.9
RDPI per Capita		0.3	0.1
Population		2.1	0.8

RDPI: Real Disposable Personal Income

Source: US Bureau of Economic Analysis

Source: http://professional.wsj.com/mdc/page/marketsdata.html?mod=WSJ_hps_marketdata

ESVI Global Financial and Economic Risk. The International Monetary Fund (IMF) provides an international safety net for prevention and resolution of international financial crises. The IMF’s Financial Sector Assessment Program (FSAP) provides analysis of the economic and financial sectors of countries (see Pelaez and Pelaez, International Financial Architecture (2005), 101-62, Globalization and the State, Vol. II (2008), 114-23). Relating economic and financial sectors is a challenging task both for theory and measurement. The IMF provides surveillance of the world economy with its Global Economic Outlook (WEO) (http://www.imf.org/external/pubs/ft/weo/2012/update/01/index.htm), of the world financial system with its Global Financial Stability Report (GFSR) (http://www.imf.org/external/pubs/ft/fmu/eng/2012/01/index.htm) and of fiscal affairs with the Fiscal Monitor (http://www.imf.org/external/pubs/ft/fm/2012/update/01/fmindex.htm). There appears to be a moment of transition in global economic and financial variables that may prove of difficult analysis and measurement. It is useful to consider a summary of global economic and financial risks, which are analyzed in detail in the comments of this blog in Section VI Valuation of Risk Financial Assets, Table VI-4.

Economic risks include the following:

1. China’s Economic Growth. China is lowering its growth target to 7.5 percent per year. The growth rate of GDP of China in the first quarter of 2012 of 1.8 percent is equivalent to 7.4 percent per year.

2. United States Economic Growth, Labor Markets and Budget/Debt Quagmire. The US is growing slowly with 28.4 million in job stress, fewer 10 million full-time jobs, high youth unemployment, historically-low hiring and declining real wages.

3. Economic Growth and Labor Markets in Advanced Economies. Advanced economies are growing slowly. There is still high unemployment in advanced economies.

4. World Inflation Waves. Inflation continues in repetitive waves globally (see Section I Inflation Waves at http://cmpassocregulationblog.blogspot.com/2012/05/world-inflation-waves-monetary-policy.html).

A list of financial uncertainties includes:

1. Euro Area Survival Risk. The resilience of the euro to fiscal and financial doubts on larger member countries is still an unknown risk.

2. Foreign Exchange Wars. Exchange rate struggles continue as zero interest rates in advanced economies induce devaluation of their currencies.

3. Valuation of Risk Financial Assets. Valuations of risk financial assets have reached extremely high levels in markets with lower volumes.

4. Duration Trap of the Zero Bound. The yield of the US 10-year Treasury rose from 2.031 percent on Mar 9, 2012, to 2.294 percent on Mar 16, 2012. Considering a 10-year Treasury with coupon of 2.625 percent and maturity in exactly 10 years, the price would fall from 105.3512 corresponding to yield of 2.031 percent to 102.9428 corresponding to yield of 2.294 percent, for loss in a week of 2.3 percent but far more in a position with leverage of 10:1. Min Zeng, writing on “Treasurys fall, ending brutal quarter,” published on Mar 30, 2012, in the Wall Street Journal (http://professional.wsj.com/article/SB10001424052702303816504577313400029412564.html?mod=WSJ_hps_sections_markets), informs that Treasury bonds maturing in more than 20 years lost 5.52 percent in the first quarter of 2012.

5. Credibility and Commitment of Central Bank Policy. There is a credibility issue of the commitment of monetary policy (Sargent and Silber 2012Mar20).

6. Carry Trades. Commodity prices driven by zero interest rates have resumed their increasing path with fluctuations caused by intermittent risk aversion

It is in this context of economic and financial uncertainties that decisions on portfolio choices of risk financial assets must be made. There is a new carry trade that learned from the losses after the crisis of 2007 or learned from the crisis how to avoid losses. The sharp rise in valuations of risk financial assets shown in Table VI-1 in the text after the first policy round of near zero fed funds and quantitative easing by the equivalent of withdrawing supply with the suspension of the 30-year Treasury auction was on a smooth trend with relatively subdued fluctuations. The credit crisis and global recession have been followed by significant fluctuations originating in sovereign risk issues in Europe, doubts of continuing high growth and accelerating inflation in China now complicated by political developments, events such as in the Middle East and Japan and legislative restructuring, regulation, insufficient growth, falling real wages, depressed hiring and high job stress of unemployment and underemployment in the US now with realization of growth standstill. The “trend is your friend” motto of traders has been replaced with a “hit and realize profit” approach of managing positions to realize profits without sitting on positions. There is a trend of valuation of risk financial assets driven by the carry trade from zero interest rates with fluctuations provoked by events of risk aversion or the “sharp shifts in risk appetite” of Blanchard (2012WEOApr, XIII). Table ESVI-1, which is updated for every comment of this blog, shows the deep contraction of valuations of risk financial assets after the Apr 2010 sovereign risk issues in the fourth column “∆% to Trough.” There was sharp recovery after around Jul 2010 in the last column “∆% Trough to 6/15/12,” which has been recently stalling or reversing amidst profound risk aversion. “Let’s twist again” monetary policy during the week of Sep 23 caused deep worldwide risk aversion and selloff of risk financial assets (http://cmpassocregulationblog.blogspot.com/2011/09/imf-view-of-world-economy-and-finance.html http://cmpassocregulationblog.blogspot.com/2011/09/collapse-of-household-income-and-wealth.html). Monetary policy was designed to increase risk appetite but instead suffocated risk exposures. There has been rollercoaster fluctuation in risk aversion and financial risk asset valuations: surge in the week of Dec 2, mixed performance of markets in the week of Dec 9, renewed risk aversion in the week of Dec 16, end-of-the-year relaxed risk aversion in thin markets in the weeks of Dec 23 and Dec 30, mixed sentiment in the weeks of Jan 6 and Jan 13 2012 and strength in the weeks of Jan 20, Jan 27 and Feb 3 followed by weakness in the week of Feb 10 but strength in the weeks of Feb 17 and 24 followed by uncertainty on financial counterparty risk in the weeks of Mar 2 and Mar 9. All financial values have fluctuated with events such as the surge in the week of Mar 16 on favorable news of Greece’s bailout even with new risk issues arising in the week of Mar 23 but renewed risk appetite in the week of Mar 30 because of the end of the quarter and the increase in the firewall of support of sovereign debts in the euro area. New risks developed in the week of Apr 6 with increase of yields of sovereign bonds of Spain and Italy, doubts on Fed policy and weak employment report. Asia and financial entities are experiencing their own risk environments. Financial markets were under stress in the week of Apr 13 because of the large exposure of Spanish banks to lending by the European Central Bank and the annual equivalent growth rate of China’s GDP of 7.4 percent in IQ2012 [(1.018)⁴]. There was strength again in the week of Apr 20 because of the enhanced IMF firewall and Spain placement of debt, continuing into the week of Apr 27. Risk aversion returned in the week of May 4 because of the expectation of elections in Europe and the new trend of deterioration of job creation in the US. Europe’s sovereign debt crisis and the fractured US job market continued to influence risk aversion in the week of May 11. Politics in Greece and banking issues in Spain were important factors of sharper risk aversion in the week of May 18. Risk aversion continued during the week of May 25 and exploded in the week of Jun 1. Expectations of stimulus by central banks caused valuation of risk financial assets in the week of Jun 8 and in the week of Jun 15. The highest valuations in column “∆% Trough to 6/15/12” are by US equities indexes: DJIA 31.8 percent and S&P 500 31.3 percent, driven by stronger earnings and economy in the US than in other advanced economies but with doubts on the relation of business revenue to the weakening economy and fractured job market. The DJIA reached 13,331.77 in intraday trading on Mar 16, which is the highest level in 52 weeks (http://professional.wsj.com/mdc/public/page/marketsdata.html?mod=WSJ_PRO_hps_marketdata). The carry trade from zero interest rates to leveraged positions in risk financial assets had proved strongest for commodity exposures but US equities have regained leadership. Before the current round of risk aversion, almost all assets in the column “∆% Trough to 6/15/12” had double digit gains relative to the trough around Jul 2, 2010 but now most valuations of equity indexes show increase of less than 10 percent: China’s Shanghai Composite is 3.2 percent below the trough; STOXX 50 of Europe is 1.0 percent above the trough; Japan’s Nikkei Average is 2.9 percent below the trough; DJ Asia Pacific TSM is 1.8 percent above the trough; Dow Global is 5.1 percent above the trough; and NYSE Financial is 2.6 percent above the trough. DJ UBS Commodities is 3.9 percent above the trough. DAX is 9.9 percent above the trough. Japan’s Nikkei Average is 2.9 percent below the trough on Aug 31, 2010 and 24.8 percent below the peak on Apr 5, 2010. The Nikkei Average closed at 8569.32 on Fri Jun 15, 2012 (http://professional.wsj.com/mdc/public/page/marketsdata.html?mod=WSJ_PRO_hps_marketdata), which is 16.4 percent lower than 10,254.43 on Mar 11, 2011, on the date of the Tōhoku or Great East Japan Earthquake/tsunami. Global risk aversion erased the earlier gains of the Nikkei. The dollar depreciated by 6.0 percent relative to the euro and even higher before the new bout of sovereign risk issues in Europe. The column “∆% week to 6/15/12” in Table ESVI-1 shows that there were increases of all valuations of risk financial assets in the week of Jun 15, 2012 such as 2.2 percent for DJ Asia Pacific, 1.3 percent for Nikkei Average, 1.1 percent for the Shanghai Composite and 1.8 percent for STOXX 50. DJ UBS Commodities remained flat. Other valuations also increased such as 1.7 percent for DJIA, 1.3 percent for S&P 500, 1.9 percent for NYSE Financial, 1.7 percent for Dow Global and 1.6 percent for DAX. There are still high uncertainties on European sovereign risks, US and world growth slowdown and China’s growth tradeoffs. Sovereign problems in the “periphery” of Europe and fears of slower growth in Asia and the US cause risk aversion with trading caution instead of more aggressive risk exposures. There is a fundamental change in Table ESVI-1 from the relatively upward trend with oscillations since the sovereign risk event of Apr-Jul 2010. Performance is best assessed in the column “∆% Peak to 6/15/12” that provides the percentage change from the peak in Apr 2010 before the sovereign risk event to Jun 8, 2012. Most risk financial assets had gained not only relative to the trough as shown in column “∆% Trough to 6/15/12” but also relative to the peak in column “∆% Peak to 6/15/12.” There are now only two equity indexes above the peak in Table ESVI-1: DJIA 13.9 percent and S&P 500 10.3 percent. There are several indexes below the peak: NYSE Financial Index (http://www.nyse.com/about/listed/nykid.shtml) by 18.3 percent, Nikkei Average by 24.8 percent, Shanghai Composite by 27.1 percent, DJ Asia Pacific by 10.9 percent, STOXX 50 by 14.4 percent, DAX by 1.6 percent and Dow Global by 14.3 percent. DJ UBS Commodities Index is now 11.2 percent below the peak. The factors of risk aversion have adversely affected the performance of risk financial assets. The performance relative to the peak in Apr 2010 is more important than the performance relative to the trough around early Jul 2010 because improvement could signal that conditions have returned to normal levels before European sovereign doubts in Apr 2010. An intriguing issue is the difference in performance of valuations of risk financial assets and economic growth and employment. Paul A. Samuelson (http://www.nobelprize.org/nobel_prizes/economics/laureates/1970/samuelson-bio.html) popularized the view of the elusive relation between stock markets and economic activity in an often-quoted phrase “the stock market has predicted nine of the last five recessions.” In the presence of zero interest rates forever, valuations of risk financial assets are likely to differ from the performance of the overall economy. The interrelations of financial and economic variables prove difficult to analyze and measure.

Table ESVI-1, Stock Indexes, Commodities, Dollar and 10-Year Treasury

	Peak	Trough	∆% to Trough	∆% Peak to 6/15 /12	∆% Week 6/15/ 12	∆% Trough to 6/15 12
DJIA	4/26/ 10	7/2/10	-13.6	13.9	1.7	31.8
S&P 500	4/23/ 10	7/20/ 10	-16.0	10.3	1.3	31.3
NYSE Finance	4/15/ 10	7/2/10	-20.3	-18.3	1.9	2.6
Dow Global	4/15/ 10	7/2/10	-18.4	-14.3	1.7	5.1
Asia Pacific	4/15/ 10	7/2/10	-12.5	-10.9	2.2	1.8
Japan Nikkei Aver.	4/05/ 10	8/31/ 10	-22.5	-24.8	1.3	-2.9
China Shang.	4/15/ 10	7/02 /10	-24.7	-27.1	1.1	-3.2
STOXX 50	4/15/10	7/2/10	-15.3	-14.4	1.8	1.0
DAX	4/26/ 10	5/25/ 10	-10.5	-1.6	1.6	9.9
Dollar Euro	11/25 2009	6/7 2010	21.2	16.5	-1.0	-6.0
DJ UBS Comm.	1/6/ 10	7/2/10	-14.5	-11.2	0.0	3.9
10-Year T Note	4/5/ 10	4/6/10	3.986	1.584

T: trough; Dollar: positive sign appreciation relative to euro (less dollars paid per euro), negative sign depreciation relative to euro (more dollars paid per euro)

I World Inflation Waves. This section provides analysis and data on world inflation waves. The general framework is provided in Subsection IA World Inflation Waves. Subsection IIB United States Inflation analyzes inflation in the United States in two subsections: IB1 Long-term US Inflation and IB2 Current US Inflation. Section IC Import Export Prices provides data and analysis of prices in US international trade.

IA World Inflation Waves. The critical fact of current world financial markets is the combination of “unconventional” monetary policy with intermittent shocks of financial risk aversion. There are two interrelated unconventional monetary policies. First, unconventional monetary policy consists of (1) reducing short-term policy interest rates toward the “zero bound” such as fixing the fed funds rate at 0 to ¼ percent by decision of the Federal Open Market Committee (FOMC) since Dec 16, 2008 (http://www.federalreserve.gov/newsevents/press/monetary/20081216b.htm). Second, unconventional monetary policy also includes a battery of measures to also reduce long-term interest rates of government securities and asset-backed securities such as mortgage-backed securities.

3. Unconventional monetary policy or its expectation can increase stock market valuations (Bernanke 2010WP). Increases in equities traded in stock markets can increase the wealth of consumers inducing increases in consumption.

4. Unconventional monetary policy causes devaluation of the dollar relative to other currencies, which can cause increases in net exports of the US that increase aggregate economic activity (Yellen 2011AS).

Table IA-1 provides annual equivalent rates of inflation for producer price indexes followed in this blog. The behavior of the US producer price index in 2011 and into 2012 shows neatly seven waves. (1) In Jan-Apr 2011, without risk aversion, US producer prices rose at the annual equivalent rate of 9.7 percent. (2) After risk aversion, producer prices increased in the US at the annual equivalent rate of 1.2 percent in May-Jul 2011. (3) From Jul to Sep 2011, under alternating episodes of risk aversion, producer prices increased at the annual equivalent rate of 6.6 percent. (4) Under the pressure of risk aversion because of the European debt crisis US producer prices fell at the annual equivalent rate of minus 1.2 percent in Oct-Nov 2011. (5) From Dec 2011 to Jan 2012, US producer prices rose at the annual equivalent rate of 1.2 percent with relaxed risk aversion and commodity-price increases at the margin. (6) Inflation of producer prices returned with 1.8 percent annual equivalent in Feb-Mar 2012. (7) With return of risk aversion from the European debt crisis, producer prices fell at the annual equivalent rate of 7.0 percent in Apr-May 2012. Resolution of the European debt crisis if there is not an unfavorable growth event with political development in China would result in jumps of valuations of risk financial assets. Increases in commodity prices would cause the same high producer price inflation experienced in Jan-Apr 2011. There are nine producer-price indexes in Table IA-1 for seven countries (two for the UK) and one region (euro area) showing very similar behavior. Zero interest rates without risk aversion cause increases in commodity prices that in turn increase input and output prices. Producer price inflation rose at very high rates during the first part of 2011 for the US, Japan, China, Euro Area, Germany, France, Italy and the UK when risk aversion was contained. With the increase in risk aversion in May and Jun, inflation moderated because carry trades were unwound. Producer price inflation returned since July, with alternating bouts of risk aversion. In the final months of the year producer price inflation collapsed because of the disincentive to exposures in commodity futures resulting from fears of resolution of the European debt crisis. There is renewed worldwide inflation in the early part of 2012 that is collapsing currently because of another round of sharp risk aversion. Unconventional monetary policy fails in stimulating the overall real economy, merely introducing undesirable instability as monetary authorities cannot control allocation of floods of money at zero interest rates to carry trades into risk financial assets.

Table IA-1, Annual Equivalent Rates of Producer Price Indexes

INDEX 2011-2012	AE ∆%
US Producer Price Index
AE ∆ % Apr-May	-7.0
AE ∆% Feb-Mar	1.8
AE ∆% Dec 2011-Jan-2012	1.2
AE ∆% Oct-Nov	-1.2
AE ∆% Jul-Sep	6.6
AE ∆% May-Jun	1.2
AE ∆% Jan-Apr	9.7
Japan Corporate Goods Price Index
AE ∆% May	-4.7
AE ∆% Feb-Apr	3.7
AE ∆% Dec-Jan	-0.6
AE ∆% Jul-Nov	-2.1
AE ∆% May-Jun	-1.2
AE ∆% Jan-Apr	7.1
Euro Zone Industrial Producer Prices
AE ∆% Jan-Mar 2012	8.3
AE ∆% Oct-Dec 2011	0.8
AE ∆% Jul-Sep	2.0
AE ∆% May-Jun	-1.2
AE ∆% Jan-Apr	12.0
China Producer Price Index
AE ∆% May	-4.7
AE ∆% Feb-Apr	2.4
AE ∆% Dec 2011-Jan 2012	-2.4
AE ∆% Jul-Nov	-3.1
AE ∆% Jan-Jun	6.4
Germany Producer Price Index
AE ∆% Feb-Apr	4.9
AE ∆% Dec 2011-Jan 2012	1.2
AE ∆% Oct-Nov	1.8
AE ∆% Jul-Sep	2.8
AE ∆% May-Jun	0.6
AE ∆% Jan-Apr	10.4
France Producer Price Index for the French Market
AE ∆% Jan-Mar	8.3
AE ∆% Dec 2011-Feb-2012	4.9
AE ∆% Oct-Dec	2.4
AE ∆% Jul-Sep	2.8
AE ∆% May-Jun	-3.5
AE ∆% Jan-Apr	11.4
Italy Producer Price Index
AE ∆% Mar-Apr	4.3
AE ∆% Jan-Feb	7.4
AE ∆% Nov 2011-Jan 2012	4.5
AE ∆% Oct-Dec	0.4
AE ∆% Jul-Sep	2.4
AE ∆% May-Jun	-1.2
AE ∆% Jan-April	10.7
UK Output Prices
AE ∆% May 2012	-2.4
AE ∆% Feb-Apr	7.4
AE ∆% Nov 2011-Jan-2012	1.6
AE ∆% May-Oct	2.0
AE ∆% Jan-Apr	12.0
UK Input Prices
AE ∆% Apr-May 2012	-21.1
AE ∆% Jan-Mar	17.6
AE ∆% Nov-Dec 2011	-1.2
AE ∆% May-Oct	-3.1
AE ∆% Jan-Apr	35.6

AE: Annual Equivalent

http://www.istat.it/it/archivio/63543

Similar world inflation waves are in the behavior of consumer price indexes of six countries and the euro zone in Table IA-2. US consumer price inflation shows similar waves. (1) Under risk appetite in Jan-Apr 2011 consumer prices increased at the annual equivalent rate of 4.9 percent. (2) Risk aversion caused the collapse of inflation to annual equivalent 2.8 percent in May-Jul 2011. (3) Risk appetite drove the rate of consumer price inflation in the US to 3.7 percent in Jul-Sep 2011. (4) Gloomier views of carry trades caused the collapse of inflation in Oct-Nov 2011 to annual equivalent 0.6 percent. (5) Consumer price inflation resuscitated with increased risk appetite at annual equivalent of 1.2 percent in Dec 2011 to Jan 2012. (6) Consumer price inflation returned at 4.3 percent annual equivalent in Feb-Mar 2012 but declining to 2.8 percent in Feb-Apr 2012 under risk aversion because of the sovereign debt crisis in Europe. (7) Under renewed risk aversion, annual equivalent consumer price inflation in the US is minus 3.5 percent in May 2012. There is similar behavior in all the other consumer price indexes in Table IA-2. China’s CPI increased at annual equivalent 8.3 percent in Jan-Mar 2011, 2.0 percent in Apr-Jun, 2.9 percent in Jul-Dec and resuscitated at 5.8 percent annual equivalent in Dec 2011 to Mar 2012, declining to minus 2.4 percent in Apr-May 2012. The euro zone harmonized index of consumer prices (HICP) increased at annual equivalent 5.2 percent in Jan-Apr 2011, minus 2.4 percent in May-Jul, 3.9 percent in Aug-Dec minus 3.0 percent in Dec 2011-Jan 2012 and then 9.6 percent in Feb-Apr 2012, falling to minus 1.2 percent annual equivalent in May 2012. The price indexes of the largest members of the euro zone, Germany, France and Italy, and the euro zone as a whole, exhibit the same inflation waves. The United Kingdom CPI increased at annual equivalent 6.5 percent in Jan-Apr 2011, falling to only 0.4 percent in May-Jul and then increasing at 4.6 percent in Aug-Nov. UK consumer prices fell at 0.6 percent annual equivalent in Dec 2011 to Jan 2012 but increased at 6.2 percent annual equivalent from Feb to Apr 2012.

Table IA-2, Annual Equivalent Rates of Consumer Price Indexes

Index 2011-2012	AE ∆%
US Consumer Price Index
AE ∆% May	-3.5
AE ∆% Feb-Apr	2.8
AE ∆% Dec 2011-Jan 2012	1.2
AE ∆% Oct-Nov	0.6
AE ∆% Jul-Sep	3.7
AE ∆% May-Jul	2.8
AE ∆% Jan-Apr	4.9
China Consumer Price Index
AE ∆% Apr-May	-2.4
AE ∆% Dec 2011-Mar 2012	5.8
AE ∆% Jul-Nov	2.9
AE ∆% Apr-Jun	2.0
AE ∆% Jan-Mar	8.3
Euro Zone Harmonized Index of Consumer Prices
AE ∆% May	-1.2
AE ∆% Feb-Apr	9.6
AE ∆% Dec 2011-Jan 2012	-3.0
AE ∆% Aug-Dec	4.3
AE ∆% May-Jul	-2.4
AE ∆% Jan-Apr	5.2
Germany Consumer Price Index
AE ∆% May	-2.4
AE ∆% Feb-Apr	4.9
AE ∆% Dec 2011-Jan 2012	1.8
AE ∆% Jul-Nov	1.2
AE ∆% May-Jun	0.6
AE ∆% Feb-Apr	4.9
France Consumer Price Index
AE ∆% May	-1.2
AE ∆% Feb-Apr	5.3
AE ∆% Dec 2011-Jan 2012	0.0
AE ∆% Aug-Nov	2.7
AE ∆% May-Jul	-0.8
AE ∆% Jan-Apr	4.3
Italy Consumer Price Index
AE ∆% May	0.0
AE ∆% Feb-Apr	5.7
AE ∆% Dec 2011-Jan 2012	4.3
AE ∆% Oct-Nov	3.0
AE ∆% Jul-Sep	2.4
AE ∆% May-Jun	1.2
AE ∆% Jan-Apr	4.9
UK Consumer Price Index
AE ∆% Feb-Apr	6.2
AE ∆% Dec 2011-Jan 2012	-0.6
AE ∆% Aug-Nov	4.6
AE ∆% May-Jul	0.4
AE ∆% Jan-Apr	6.5

AE: Annual Equivalent

IB United States Inflation. Monetary policy pursues symmetric inflation targets of maintaining core inflation of the index of personal consumption expenditures (core PCE) in an open interval of 2.00 percent. If inflation increases above 2.00 percent, the central bank could use restrictive monetary policy such as increases in interest rates to contain inflation in a tight range or interval around 2.00 percent. If inflation falls below 2 percent, the central bank could use restrictive monetary policy such as lowering interest rates to prevent inflation from falling too much below 2.00 percent. Currently, with about thirty million unemployed and underemployed (http://cmpassocregulationblog.blogspot.com/2012/05/recovery-without-jobs-twenty-eight.html) and depressed hiring (http://cmpassocregulationblog.blogspot.com/2012/05/recovery-without-hiring-ten-million.html), there may even be a policy bias to raise or at least ignore inflation, even with falling real wages, maintaining accommodation as a form of promoting full employment. There are two arguments in favor of symmetric inflation targets preventing inflation from falling to very low levels.

1. Room for interest rate policy. Nominal interest rates hardly ever fall below zero. In economic jargon, the floor of zero nominal interest rates is referred to as “the zero bound.” Symmetric targets are proposed to maintain a sufficiently high inflation rate such that interest rates can be lowered to promote economic activity when recession threatens. With inflation close to zero there is no room for lowering interest rates with policy tools.

2. Fear of Deflation. Inflation is a process of sustained increases in prices. Deflation is a process of sustained decreases in prices. The probability of deflation increases as inflation approximates zero. The influence of fear of deflation in monetary policy is discussed in Pelaez and Pelaez (International Financial Architecture (2005), 18-28, The Global Recession Risk (2007), 83-95).

Subsection IB1 Long-term US Inflation evaluates long-term inflation in the US, concluding that there has not been deflation risk since World War II. Subsection IB2 Current US Inflation finds no evidence in current inflation justifying fear of deflation. Subsection IC Import Export Prices also does not find evidence in trade prices justifying fear of deflation.

IB1 Long-term US Inflation. Key percentage average yearly rates of the US economy on growth and inflation are provided in Table IB-1 updated with release of new data. The choice of dates prevents the measurement of long-term potential economic growth because of two recessions from IQ2001 (Mar) to IVQ2001 (Nov) with decline of GDP of 0.4 percent and the drop in GDP of 5.1 percent in IVQ2007 (Dec) to IIQ2009 (June) (http://www.nber.org/cycles.html) followed with unusually low economic growth for an expansion phase after recession with the economy growing at 2.0 percent from IQ2011 to IQ2012 and annual equivalent in the four quarters of 2011 and first quarter of 2012 at 1.7 percent (http://cmpassocregulationblog.blogspot.com/2012/06/mediocre-recovery-without-jobs.html). Between 2000 and 2011, real GDP grew at the average rate of 1.6 percent per year, nominal GDP at 3.9 percent and the implicit deflator at 2.3 percent. Between 2000 and 2012, the average rate of CPI inflation was 2.5 percent per year and 2.0 percent excluding food and energy. PPI inflation increased at 3.2 percent per year on average from 2000 to 2012 and at 1.9 percent excluding food and energy. There is also inflation in international trade. Import prices grew at 3.4 percent per year between 2000 and 2012. The commodity price shock is revealed by inflation of import prices of petroleum increasing at 14.5 percent per year between 2000 and 2011 and at 13.0 percent between 2000 and 2012. The average growth rates of import prices excluding fuels are much lower at 1.7 percent for 2002 to 2011 and 1.6 percent for 2000 to 2012. Export prices rose at the average rate of 2.7 percent between 2000 and 2011 and at 2.5 percent from 2000 to 2012. What spared the US of sharper decade-long deterioration of the terms of trade, (export prices)/(import prices), was its diversification and competitiveness in agriculture. Agricultural export prices grew at the average yearly rate of 7.0 percent from 2000 to 2011 and at 6.3 percent from 2000 to 2012. US nonagricultural export prices rose at 2.3 percent per year from 2000 to 2011 and at 2.1 percent from 2000 to 2012. The share of petroleum imports in US trade far exceeds that of agricultural exports. Unconventional monetary policy inducing carry trades in commodities has deteriorated US terms of trade, prices of exports relative to prices of imports, tending to restrict growth of US aggregate real income. These dynamic inflation rates are not similar to those for the economy of Japan where inflation was negative in seven of the 10 years in the 2000s.

Table IB-1, US, Average Growth Rates of Real and Nominal GDP, Consumer Price Index, Producer Price Index and Import and Export Prices, Percent per Year

Real GDP	2000-2011: 1.6%
Nominal GDP	2000-2011: 3.9%
Implicit Price Deflator	2000-2011: 2.3%
CPI	2000-2011: 2.5% 2000-2012: 2.5%
CPI ex Food and Energy	2000-2011: 2.0% 2000-2012: 2.0%
PPI	2000-2011: 3.5% 2000-2012: 3.2%
PPI ex Food and Energy	2000-2011: 1.8% 2000-2012: 1.9%
Import Prices	2000-2011: 3.4% 2000-2012: 3.1%
Import Prices of Petroleum and Petroleum Products	2000-2011: 14.5% 2000-2012: 13.0%
Import Prices Excluding Petroleum	2000-2011: 1.4% 2000-2012: 1.3%
Import Prices Excluding Fuels	2002-2011: 1.7% 2002-2012: 1.6%
Export Prices	2000-2011: 2.7% 2000-2012: 2.5%
Agricultural Export Prices	2000-2011: 7.0% 2000-2012: 6.3%
Nonagricultural Export Prices	2000-2011: 2.3% 2000-2012: 2.1%

Note: rates for price indexes in the row beginning with “CPI” and ending in the row “Nonagricultural Export Prices” are for May 2000 to May 2011 and for May 2000 to May 2012 using not seasonally adjusted indexes. Import prices excluding fuels are not available before 2002.

Sources:

http://www.bea.gov/iTable/index_nipa.cfm http://www.bls.gov/ppi/data.htm

http://www.bls.gov/mxp/data.htm http://www.bls.gov/cpi/data.htm

Unconventional monetary policy of zero interest rates and large-scale purchases of long-term securities for the balance sheet of the central bank is proposed to prevent deflation. The data of CPI inflation of all goods and CPI inflation excluding food and energy for the past six decades show only one negative change by 0.4 percent in the CPI all goods annual index in 2009 but not one year of negative annual yearly change in the CPI excluding food and energy measuring annual inflation (http://cmpassocregulationblog.blogspot.com/2011/08/world-financial-turbulence-global.html). Zero interest rates and quantitative easing are designed to lower costs of borrowing for investment and consumption, increase stock market valuations and devalue the dollar. In practice, the carry trade is from zero interest rates to a large variety of risk financial assets including commodities. Resulting commodity price inflation squeezes family budgets and deteriorates the terms of trade with negative effects on aggregate demand and employment. Excessive valuations of risk financial assets eventually result in crashes of financial markets with possible adverse effects on economic activity and employment.

Producer price inflation history in the past five decades does not provide evidence of deflation. The finished core PPI does not register even one single year of decline. The headline PPI experienced only six isolated cases of decline (http://cmpassocregulationblog.blogspot.com/2011/08/world-financial-turbulence-global.html):

-0.3 percent in 1963,

-1.4 percent in 1986,

-0.8 percent in 1986,

-0.8 percent in 1998,

-1.3 percent in 2001

-2.6 percent in 2009.

Deflation should show persistent cases of decline of prices and not isolated events. Fear of deflation in the US has caused a distraction of monetary policy. Symmetric inflation targets around 2 percent in the presence of multiple lags in effect of monetary policy and imperfect knowledge and forecasting are mostly unfeasible and likely to cause price and financial instability instead of desired price and financial stability.

Chart IB-1 provides US nominal GDP from 1980 to 2010. The only major bump in the chart occurred in the recession of IVQ2007 to IIQ2009. Tendency for deflation would be reflected in persistent bumps. In contrast, during the Great Depression in the four years of 1930 to 1933, GDP in constant dollars fell 26.5 percent cumulatively and fell 45.6 percent in current dollars (Pelaez and Pelaez, Financial Regulation after the Global Recession (2009a), 150-2, Pelaez and Pelaez, Globalization and the State, Vol. II (2009b), 205-7). The comparison of the global recession after 2007 with the Great Depression is entirely misleading.

Chart IB-1, US, Nominal GDP 1980-2011

Source: US Bureau of Economic Analysis

Chart IB-2 provides US real GDP from 1980 to 2011. Persistent deflation threatening real economic activity would also be reflected in the series of long-term growth of GDP. There is no such behavior in Chart IB-2 except for periodic recessions in the US economy that have occurred throughout history.

Chart IB-2, US, Real GDP 1980-2011

Source: US Bureau of Economic Analysis

Deflation would also be in evidence in long-term series of prices in the form of bumps. The GDP implicit deflator series in Chart IB-3 from 1980 to 2012 shows sharp dynamic behavior over time. The US economy is not plagued by deflation but by long-run inflation.

Chart IB-3, US, GDP Implicit Price Deflator 1980-2012

Source: US Bureau of Economic Analysis

Chart IB-4 provides percent change from preceding quarter in prices of GDP at seasonally-adjusted annual rates (SAAR) from 1980 to 2011. There is one case of negative change in IIQ2009. There has not been actual deflation or risk of deflation in the US that would justify unconventional monetary policy.

Chart IB-4, Percent Change from Preceding Period in Prices for GDP Seasonally Adjusted at Annual Rates 1980-2012

Source: US Bureau of Economic Analysis

Chart IB-5 provides percent change from preceding year in prices of GDP from 1980 to 2011. There was not one single year of deflation or risk of deflation in the past three decades.

Chart IB-5, Percent Change from Preceding Year in Prices for Gross Domestic Product 1980-2011

Source: http://www.bea.gov/iTable/index_nipa.cfm

The producer price index of the US from 1960 to 2012 in Chart IB-6 shows various periods of more rapid or less rapid inflation but no bumps. The major event is the decline in 2008 when risk aversion because of the global recession caused the collapse of oil prices from $148/barrel to less than $80/barrel with most other commodity prices also collapsing. The event had nothing in common with explanations of deflation but rather with the concentration of risk exposures in commodities after the decline of stock market indexes. Eventually, there was a flight to government securities because of the fears of insolvency of banks caused by statements supporting proposals for withdrawal of toxic assets from bank balance sheets in the Troubled Asset Relief Program (TARP), as explained by Cochrane and Zingales (2009). The bump in 2008 with decline in 2009 is consistent with the view that zero interest rates with subdued risk aversion induce carry trades into commodity futures.

Chart IB-6, US, Producer Price Index, Finished Goods, NSA, 1960-2012

Source: US Bureau of Labor Statistics

Chart IB-7 provides 12-month percentage changes of the producer price index from 1960 to 2012. The distinguishing event in Chart IV-2 is the Great Inflation of the 1970s. The shape of the two-hump Bactrian camel of the 1970s resembles the double hump from 2007 to 2012.

Chart IB-7, US, Producer Price Index, Finished Goods, 12-Month Percentage Change, NSA, 1960-2012

Source: US Bureau of Labor Statistics

The producer price index excluding food and energy from 1973 to 2012, the first historical date of availability in the dataset of the Bureau of Labor Statistics (BLS), shows similarly dynamic behavior as the overall index, as shown in Chart IB-8. There is no evidence of persistent deflation in the US PPI.

Chart IB-8, US Producer Price Index, Finished Goods Excluding Food and Energy, NSA, 1973-2012

Source: US Bureau of Labor Statistics

Chart IB-9 provides 12-month percentage rates of change of the finished goods index excluding food and energy. The dominating characteristic is the Great Inflation of the 1970s. The double hump illustrates how inflation may appear to be subdued and then returns with strength.

Chart IB-9, US Producer Price Index, Finished Goods Excluding Food and Energy, 12-Month Percentage Change, NSA, 1974-2012

Source: US Bureau of Labor Statistics

The producer price index of energy goods from 1974 to 2012 is provided in Chart IB-10. The first jump occurred during the Great Inflation of the 1970s analyzed in various comments of this blog (http://cmpassocregulationblog.blogspot.com/2012/06/rules-versus-discretionary-authorities.html http://cmpassocregulationblog.blogspot.com/2011/05/slowing-growth-global-inflation-great.html http://cmpassocregulationblog.blogspot.com/2011/04/new-economics-of-rose-garden-turned.html http://cmpassocregulationblog.blogspot.com/2011/03/is-there-second-act-of-us-great.html) and in Appendix I. There is relative stability of producer prices after 1986 with another jump and decline in the late 1990s into the early 2000s. The episode of commodity price increases during a global recession in 2008 could only have occurred with interest rates dropping toward zero, which stimulated the carry trade from zero interest rates to leveraged positions in commodity futures. Commodity futures exposures were dropped in the flight to government securities after Sep 2008. Commodity future exposures were created again when risk aversion diminished around Mar 2011 after the finding that US bank balance sheets did not have the toxic assets that were mentioned in proposing TARP in Congress (see Cochrane and Zingales 2009). Fluctuations in commodity prices and other risk financial assets originate in carry trade when risk aversion ameliorates.

Chart IB-10, US, Producer Price Index, Finished Energy Goods, NSA, 1974-2012

Source: US Bureau of Labor Statistics

Chart IB-11 shows 12-month percentage changes of the producer price index of finished energy goods from 1975 to 2012. This index is only available after 1974 and captures only one of the humps of energy prices during the Great Inflation. Fluctuations in energy prices have occurred throughout history in the US but without provoking deflation. Two cases are the decline of oil prices in 2001 to 2002 that has been analyzed by Barsky and Kilian (2004) and the collapse of oil prices from over $140/barrel with shock of risk aversion to the carry trade in Sep 2008.

Chart IB-11, US, Producer Price Index, Finished Energy Goods, 12-Month Percentage Change, NSA, 1974-2012

Source: US Bureau of Labor Statistics

Chart IB-12 provides the consumer price index NSA from 1960 to 2012. The dominating characteristic is the increase in slope during the Great Inflation from the middle of the 1960s through the 1970s. There is long-term inflation in the US and no evidence of deflation risks.

Chart IB-12, US, Consumer Price Index, NSA, 1960-2012

Source: US Bureau of Labor Statistics

Chart IB-13 provides 12-month percentage changes of the consumer price index from 1960 to 2012. There are actually three waves of inflation in the second half of the 1960s, in the mid 1970s and again in the late 1970s. Inflation rates then stabilized in a range with only two episodes above 5 percent.

Chart IB-13, US, Consumer Price Index, All Items, 12- Month Percentage Change 1960-2012

Source: US Bureau of Labor Statistics

Chart IB-14 provides the consumer price index excluding food and energy from 1960 to 2012. There is long-term inflation in the US without episodes of deflation.

Chart IB-14, US, Consumer Price Index Excluding Food and Energy, NSA, 1960-2012

Source: US Bureau of Labor Statistics

Chart IB-15 provides 12-month percentage changes of the consumer price index excluding food and energy from 1960 to 2012. There are three waves of inflation in the 1970s during the Great Inflation. There is no episode of deflation.

Chart IB-15, US, Consumer Price Index Excluding Food and Energy, 12-Month Percentage Change, NSA, 1960-2012

Source: US Bureau of Labor Statistics

The consumer price index of housing is provided in Chart IB-16. There was also acceleration during the Great Inflation of the 1970s. The index flattens after the global recession in IVQ2007 to IIQ2009. Housing prices collapsed under the weight of construction of several times more housing than needed. Surplus housing originated in subsidies and artificially low interest rates in the shock of unconventional monetary policy in 2003 to 2004 in fear of deflation.

Chart IB-16, US, Consumer Price Index Housing, NSA, 1967-2012

Source: US Bureau of Labor Statistics

Chart IB-17 provides 12-month percentage changes of the housing CPI. The Great Inflation also had extremely high rates of housing inflation. Housing is considered as potential hedge of inflation.

Chart IB-17, US, Consumer Price Index, Housing, 12- Month Percentage Change, NSA, 1968-2012

Source: US Bureau of Labor Statistics

http://www.bls.gov/news.release/pdf/cpi.pdf

IB2 Current US Inflation. Consumer price inflation has fluctuated in recent months. Table IB-2 provides 12-month consumer price inflation in Mat and annual equivalent percentage changes for the months of Jan to May 2012 of the CPI and major segments. The final column provides inflation from Apr to May 2012. CPI inflation in the 12 months ending in Apr reached 1.7 percent, the annual equivalent rate Jan to May was lower at 1.4 percent and the monthly inflation rate of -0.3 percent annualizes at minus 3.5 percent {[(1-0.003)¹² – 1]100}. These inflation rates fluctuate in accordance with inducement of risk appetite or frustration by risk aversion of carry trades from zero interest rates to commodity futures. At the margin, the decline in commodity prices in sharp current risk aversion in financial markets is causing lower inflation worldwide. With zero interest rates, commodity prices would increase again in an environment of risk appetite. Excluding food and energy, CPI inflation was 2.3 percent in the 12 months ending in May and 2.2 percent in annual equivalent in Jan-May. There is no deflation in the US economy that could justify further quantitative easing. Consumer food prices in the US have risen 2.8 percent in 12 months ending in May and at 1.4 percent in annual equivalent in Jan-May. Monetary policies stimulating carry trades of commodities that increase prices of food constitute a highly regressive tax on lower income families for whom food is a major portion of the consumption basket. Energy consumer prices decreased 3.9 percent in 12 months, fell 4.4 percent in annual equivalent in Jan-May and declined 4.3 percent in May as carry trades from zero interest rates to commodity futures were unwound and repositioned during alternating risk aversion and risk appetite originating in the European debt crisis and increasingly in growth and politics in China. For lower income families, food and energy are a major part of the family budget. Inflation is not low or threatening deflation in annual equivalent in Jan-May in any of the categories in Table IB-2 but simply reflecting waves of inflation originating in carry trades. An upward trend is determined by carry trades from zero interest rates to commodity futures positions with episodes of risk aversion causing fluctuations.

Table IB-2, US, Consumer Price Index Percentage Changes 12 months NSA and Annual Equivalent ∆%

	∆% 12 Months May 2012/May 2011 NSA	∆% Annual Equivalent Jan to May 2012 SA	∆% May 2012/Apr 2012 SA
CPI All Items	1.7	1.4	-0.3
CPI ex Food and Energy	2.3	2.2	0.2
Food	2.8	1.4	0.0
Food at Home	2.7	0.5	-0.1
Food Away from Home	2.9	2.9	0.2
Energy	-3.9	-4.4	-4.3
Gasoline	-4.0	-3.0	-6.8
Fuel Oil	-1.1	7.1	-2.8
New Vehicles	1.3	3.4	0.2
Used Cars and Trucks	3.5	6.4	1.0
Medical Care Commodities	2.7	4.4	0.0
Apparel	4.4	3.1	0.4
Services Less Energy Services	2.5	2.4	0.2
Shelter	2.3	2.4	0.2
Transportation Services	1.9	2.2	0.3
Medical Care Services	3.9	3.4	0.5

Source: US Bureau of Labor Statistics

The weights of the CPI, US city average for all urban consumers representing about 87 percent of the US population (http://www.bls.gov/cpi/cpiovrvw.htm#item1), are shown in Table IB-3 with the BLS update of Mar 7, 2012 (http://www.bls.gov/cpi/cpiri2011.pdf). Housing has a weight of 41.020 percent. The combined weight of housing and transportation is 58.895 percent or more than one half of consumer expenditures of all urban consumers. The combined weight of housing, transportation and food and beverages is 73.151 percent of the US CPI.

Table IB-3, US, Relative Importance, 2009-2010 Weights, of Components in the Consumer Price Index, US City Average, Dec 2011

All Items	100.000
Food and Beverages	15.256
Food	14.308
Food at home	8.638
Food away from home	5.669
Housing	41.020
Shelter	31.539
Rent of primary residence	6.485
Owners’ equivalent rent	23.957
Apparel	3.562
Transportation	16.875
Private Transportation	15.694
New vehicles	3.195
Used cars and trucks	1.913
Motor fuel	5.463
Gasoline	5.273
Medical Care	7.061
Medical care commodities	1.716
Medical care services	5.345
Recreation	6.044
Education and Communication	6.797
Other Goods and Services	3.385

Note: reissued Mar 7, 2012. Refers to all urban consumers, covering approximately 87 percent of the US population (see http://www.bls.gov/cpi/cpiovrvw.htm#item1)

Source:

US Bureau of Labor Statistics http://www.bls.gov/cpi/cpiri2011.pdf

Chart IB-18 provides the US consumer price index for housing from 2001 to 2012. Housing prices rose sharply during the decade until the bump of the global recession and increased again in 2011 with some stabilization currently. The CPI excluding housing would likely show much higher inflation. Income remaining after paying for indispensable shelter has been compressed by the commodity carry trades resulting from unconventional monetary policy.

Chart IB-18, US, Consumer Price Index, Housing, NSA, 2001-2012

Source: US Bureau of Labor Statistics

Chart IB-19 provides 12-month percentage changes of the housing CPI. Percentage changes collapsed during the global recession but have been rising into positive territory in 2011 and 2012 but with the rate declining recently.

Chart IB-19, US, Consumer Price Index, Housing, 12-Month Percentage Change, NSA, 2001-2012

Source: US Bureau of Labor Statistics

There have been waves of consumer price inflation in the US in 2011 and into 2012 (Section I and earlier at http://cmpassocregulationblog.blogspot.com/2012/05/world-inflation-waves-monetary-policy.html) that are illustrated in Table IB-4. The first wave occurred in Jan-Apr 2011 and was caused by the carry trade of commodity prices induced by unconventional monetary policy of zero interest rates. Cheap money at zero opportunity cost in environment of risk appetite was channeled into financial risk assets, causing increases in commodity prices. The annual equivalent rate of increase of the all-items CPI in Jan-Apr 2011 was 4.9 percent and the CPI excluding food and energy increased at annual equivalent rate of 2.4 percent. The second wave occurred during the collapse of the carry trade from zero interest rates to exposures in commodity futures as a result of risk aversion in financial markets created by the sovereign debt crisis in Europe. The annual equivalent rate of increase of the all-items CPI dropped to 2.8 percent in May-Jul 2011 while the annual equivalent rate of the CPI excluding food and energy increased at 3.0 percent. In the third wave in Jul-Sep 2011, annual equivalent CPI inflation rose to 3.7 percent while the core CPI increased at 2.0 percent. The fourth wave occurred in the form of increase of the CPI all-items annual equivalent rate to 0.6 percent in Oct-Nov 2011 with the annual equivalent rate of the CPI excluding food and energy remaining at 2.4 percent. The fifth wave occurred in Dec 2011 to Jan 2012 with annual equivalent headline inflation of 1.2 percent and core inflation of 1.8 percent. In the sixth wave, headline CPI inflation increased at annual equivalent 4.3 percent in Feb-Mar 2012 and core CPI inflation at 1.8 percent but including Apr, the annual equivalent inflation of the headline CPI was 2.8 percent in Feb-Apr and 2.0 percent for the core CPI. The seventh wave is beginning with annual equivalent inflation of 3.5 percent for the headline CPI in May 2012 and 2.4 percent for the core CPI. The conclusion is that inflation accelerates and decelerates in unpredictable fashion that turns symmetric inflation targets in a source of destabilizing shocks to the financial system and eventually the overall economy. Unconventional monetary policy of zero interest rates and withdrawal of bonds to lower long-term interest rates distorts risk/return decisions required for efficient allocation of resources and attaining optimal growth paths and prosperity.

Table IB-4, US, Headline and Core CPI Inflation Monthly SA and 12 Months NSA ∆%

	All Items SA Month	All Items NSA 12 month	Core SA Month	Core NSA 12 months
May 2012	-0.3	1.7	0.2	2.3
AE ∆%	-3.5		2.4
Apr	0.0	2.3	0.2	2.3
Mar	0.3	2.7	0.2	2.3
Feb	0.4	2.9	0.1	2.2
AE ∆% Feb-Apr	2.8		2.0
Jan	0.2	2.9	0.2	2.3
Dec 2011	0.0	3.0	0.1	2.2
AE ∆% Dec-Jan	1.2		1.8
Nov	0.1	3.4	0.2	2.2
Oct	0.0	3.5	0.2	2.1
AE ∆% Oct-Nov	0.6		2.4
Sep	0.3	3.9	0.1	2.0
Aug	0.3	3.8	0.2	2.0
Jul	0.3	3.6	0.2	1.8
AE ∆% Jul-Sep	3.7		2.0
Jun	0.1	3.6	0.2	1.6
May	0.3	3.6	0.3	1.5
AE ∆% May-Jul	2.8		3.0
Apr	0.4	3.2	0.2	1.3
Mar	0.5	2.7	0.2	1.2
Feb	0.4	2.1	0.2	1.1
Jan	0.3	1.6	0.2	1.0
AE ∆% Jan-Apr	4.9		2.4
Dec 2010	0.4	1.5	0.1	0.8
Nov	0.2	1.1	0.1	0.8
Oct	0.3	1.2	0.0	0.6
Sep	0.1	1.1	0.0	0.8
Aug	0.2	1.1	0.1	0.9
Jul	0.2	1.2	0.1	0.9
Jun	0.0	1.1	0.1	0.9
May	-0.1	2.0	0.1	0.9
Apr	0.0	2.2	0.0	0.9
Mar	0.0	2.3	0.1	1.1
Feb	0.0	2.1	0.1	1.3
Jan	0.1	2.6	-0.1	1.6

Note: Core: excluding food and energy; AE: annual equivalent

Source: US Bureau of Labor Statistics

The behavior of the US consumer price index NSA from 2001 to 2011 is provided in Chart IB-20. Inflation in the US is very dynamic without deflation risks that would justify symmetric inflation targets. The hump in 2008 originated in the carry trade from interest rates dropping to zero into commodity futures. There is no other explanation for the increase of oil prices toward $140/barrel during the global recession. The unwinding of the carry trade with the TARP announcement of toxic assets in banks channeled cheap money into government obligations (see Cochrane and Zingales 2009).

Chart IB-20, US, Consumer Price Index, NSA, 2001-2012

Source: US Bureau of Labor Statistics

Chart IB-21 provides 12-month percentage changes of the consumer price index from 2001 to 2012. There was no deflation or threat of deflation from 2008 into 2009. Commodity prices collapsed during the panic of toxic assets in banks. When stress tests in 2009 revealed US bank balance sheets in much stronger position, cheap money at zero opportunity cost exited government obligations and flowed into carry trades of risk financial assets. Increases in commodity prices drove again the all items CPI with interruptions during risk aversion originating in the sovereign debt crisis of Europe.

Chart IB-21, US, Consumer Price Index, 12-Month Percentage Change, NSA, 2001-2012

Source: US Bureau of Labor Statistics

The trend of increase of the consumer price index excluding food and industry in Chart IB-22 does not reveal any threat of deflation that would justify symmetric inflation targets. There are mild oscillations in a neat upward trend.

Chart IB-22, US, Consumer Price Index Excluding Food and Energy, NSA, 2001-2012

Source: US Bureau of Labor Statistics

Chart IB-23 provides 12-month percentage change of the consumer price index excluding food and energy. Past-year rates of inflation fell toward 1 percent from 2001 into 2003 as a result of the recession and the decline of commodity prices beginning before the recession with declines of real oil prices. Near zero interest rates with fed funds at 1 percent between Jun 2003 and Jun 2004 stimulated carry trades of all types, including in buying homes with subprime mortgages in expectation that low interest rates forever would increase home prices permanently, creating the equity that would permit the conversion of subprime mortgages into creditworthy mortgages (Gorton 2009EFM; see http://cmpassocregulationblog.blogspot.com/2011/07/causes-of-2007-creditdollar-crisis.html). Inflation rose and then collapsed during the unwinding of carry trades and the housing debacle of the global recession. Carry trade into 2011 and 2012 gave a new impulse to CPI inflation, all items and core. Symmetric inflation targets destabilize the economy by encouraging hunts for yields that inflate and deflate financial assets, obscuring risk/return decisions on production, investment and hiring.

Chart IB-23, US, Consumer Price Index Excluding Food and Energy, 12-Month Percentage Change, NSA, 2001-2012

Source: US Bureau of Labor Statistics

Headline and core producer price index are in Table IB-5. The headline PPI SA fell 1.0 percent in May while the 12-month rate NSA fell from 4.1 percent in Jan to 3.3 percent in Feb, 2.8 percent in Mar, 1.9 percent in Apr and 0.7 percent in May. The core PPI SA increased 0.2 percent in May and rose 2.7 percent in 12 months. Analysis of annual equivalent rates of change shows inflation waves similar to those worldwide. In the first wave, the absence of risk aversion from the sovereign risk crisis in Europe motivated the carry trade from zero interest rates into commodity futures that caused the average equivalent rate of 9.7 percent in the headline PPI in Jan-Apr 2011 and 4.0 percent in the core PPI. In the second wave, commodity futures prices collapsed in May 2011 with the return of risk aversion originating in the sovereign risk crisis of Europe. The annual equivalent rate of headline PPI inflation collapsed to 1.2 percent in May-Jun but the core annual equivalent inflation rate was much higher at 3.0 percent. In the third wave, headline PPI inflation resuscitated with annual equivalent at 6.6 percent in Jul-Sep 2011 and core PPI inflation at 4.1 percent. Core PPI inflation was persistent throughout 2011, jumping from annual equivalent at 2.4 percent in the first four months of 2010 to 2.7 percent in 12 months ending in May 2012 and 3.9 percent in annual equivalent rate in Dec 2011 to Mar 2012. Unconventional monetary policy is based on the proposition that core rates reflect more fundamental inflation and are thus better predictors of the future. In practice, the relation of core and headline inflation is as difficult to predict as future inflation (see IIID Supply Shocks in http://cmpassocregulationblog.blogspot.com/2011_05_01_archive.html). In the fourth wave, risk aversion originating in the lack of resolution of the European debt crisis caused unwinding of carry trades with annual equivalent headline PPI inflation of minus 1.2 percent in Oct-Nov 2011 and 0.6 percent in the core annual equivalent. In the fifth wave from Dec 2011 to Jan 2012, annual equivalent inflation was 1.2 percent for the headline index but 4.9 percent for the core index excluding food and energy. In the sixth wave, headline annual equivalent inflation in Feb-Mar 2012 was 1.8 percent for the headline PPI and 3.0 percent for the core. In the seventh wave, renewed risk aversion caused reversal of carry trade commodity exposures with annual equivalent headline inflation of minus 7.0 percent in Apr-May 2012 while core PPI inflation was at annual equivalent 2.4 percent. It is almost impossible to forecast PPI inflation and its relation to CPI inflation. “Inflation surprise” by monetary policy could be proposed to climb along a downward sloping Phillips curve, resulting in higher inflation but lower unemployment (see Kydland and Prescott 1977, Barro and Gordon 1983 and past comments of this blog http://cmpassocregulationblog.blogspot.com/2011/05/slowing-growth-global-inflation-great.html http://cmpassocregulationblog.blogspot.com/2011/04/new-economics-of-rose-garden-turned.html http://cmpassocregulationblog.blogspot.com/2011/03/is-there-second-act-of-us-great.html http://cmpassocregulationblog.blogspot.com/2012/06/rules-versus-discretionary-authorities.html). The architects of monetary policy would require superior inflation forecasting ability compared to forecasting naivety by everybody else. In practice, we are all naïve in forecasting inflation and other economic variables and events.

Table IB-5, US, Headline and Core PPI Inflation Monthly SA and 12-Month NSA ∆%

	Finished Goods SA Month	Finished Goods NSA 12 months	Finished Core SA Month	Finished Core NSA 12 months
May 2012	-1.0	0.7	0.2	2.7
Apr	-0.2	1.9	0.2	2.7
AE ∆% Apr-May	-7.0		2.4
Mar	0.0	2.8	0.3	2.9
Feb	0.3	3.3	0.2	3.0
AE ∆% Feb-Mar	1.8		3.0
Jan	0.3	4.1	0.6	3.1
Dec 2011	-0.1	4.7	0.2	3.0
AE ∆% Dec-Jan	1.2		4.9
Nov	0.1	5.6	0.1	3.0
Oct	-0.3	5.8	0.0	2.9
AE ∆% Oct-Nov	-1.2		0.6
Sep	0.9	7.0	0.3	2.8
Aug	0.2	6.6	0.2	2.7
Jul	0.5	7.1	0.5	2.7
AE ∆% Jul-Sep	6.6		4.1
Jun	0.1	6.9	0.3	2.3
May	0.1	7.1	0.2	2.1
AE ∆% May-Jun	1.2		3.0
Apr	0.7	6.6	0.3	2.3
Mar	0.5	5.6	0.3	2.0
Feb	1.1	5.4	0.2	1.8
Jan	0.8	3.6	0.5	1.6
AE ∆% Jan-Apr	9.7		4.0
Dec 2010	0.9	3.8	0.2	1.4
Nov	0.4	3.4	-0.1	1.2
Oct	0.8	4.3	-0.2	1.6
Sep	0.4	3.9	0.2	1.6
Aug	0.7	3.3	0.2	1.3
Jul	0.2	4.1	0.2	1.5
Jun	-0.2	2.7	0.1	1.1
May	-0.2	5.1	0.3	1.3
Apr	-0.1	5.4	0.1	0.9
Mar	0.5	5.9	0.2	0.9
Feb	-0.6	4.2	0.0	1.0
Jan	1.0	4.5	0.3	1.0

Note: Core: excluding food and energy; AE: annual equivalent

Source: US Bureau of Labor Statistics

The US producer price index NSA from 2000 to 2012 is shown in Chart IB-24. There are two episodes of decline of the PPI during recessions in 2001 and in 2008. Barsky and Kilian (2004) consider the 2001 episode as one in which real oil prices were declining when recession began. Recession and the fall of commodity prices instead of generalized deflation explain the behavior of US inflation in 2008.

Chart IB-24, US, Producer Price Index, NSA, 2000-2012

Source: US Bureau of Labor Statistics

Twelve-month percentage changes of the PPI NSA from 2000 to 2012 are shown in Chart IB-25. It may be possible to forecast trends a few months in the future under adaptive expectations but turning points are almost impossible to anticipate especially when related to fluctuations of commodity prices in response to risk aversion. In a sense, monetary policy has been tied to behavior of the PPI in the negative 12-month rates in 2001 to 2003 and then again in 2009 to 2010. Monetary policy following deflation fears caused by commodity price fluctuations would introduce significant volatility and risks in financial markets and eventually in consumption and investment.

Chart IB-25, US, Producer Price Index, 12-Month Percentage Change NSA, 2000-2012

Source: US Bureau of Labor Statistics

The US PPI excluding food and energy from 2000 to 2012 is shown in Chart IB-26. There is here again a smooth trend of inflation instead of prolonged deflation as in Japan.

Chart IB-26, US, Producer Price Index Excluding Food and Energy, NSA, 2000-2012

Source: US Bureau of Labor Statistics

Twelve-month percentage changes of the producer price index excluding food and energy are shown in Chart IB-27. Fluctuations replicate those in the headline PPI. There is an evident trend of increase of 12 months rates of core PPI inflation in 2011 but lower rates in the beginning of 2012.

Chart IB-27, US, Producer Price Index Excluding Food and Energy, 12-Month Percentage Change, NSA, 2000-2012

Source: US Bureau of Labor Statistics

The US producer price index of energy goods from 2000 to 2012 is in Chart IB-28. There is a clear upward trend with fluctuations that would not occur under persistent deflation.

Chart IB-28, US, Producer Price Index Finished Energy Goods, NSA, 2000-2012

Source: US Bureau of Labor Statistics

Chart IB-29 provides 12-month percentage changes of the producer price index of energy goods from 2000 to 2012. The episode of declining prices of energy goods in 2001 to 2002 is related to the analysis of decline of real oil prices by Barsky and Kilian (2004). Interest rates dropping to zero during the global recession explain the rise of the PPI of energy goods toward 30 percent. Bouts of risk aversion with policy interest rates held close to zero explain the fluctuations in the 12-month rates of the PPI of energy goods in the expansion phase of the economy. Symmetric inflation targets induce significant instability in inflation and interest rates with adverse effects on financial markets and the overall economy.

Chart IB-29, US, Producer Price Index Energy Goods, 12-Month Percentage Change, NSA, 2000-2012

Source: US Bureau of Labor Statistics

Table IB-6 provides 12-month percentage changes of the CPI all items, CPI core and CPI housing from 2001 to 2012. There is no evidence in these data supporting symmetric inflation targets that would only induce greater instability in inflation, interest rates and financial markets. Unconventional monetary policy drives wide swings in allocations of positions into risk financial assets that generate instability instead of intended pursuit of prosperity without inflation. There is insufficient knowledge and imperfect tools to maintain the gap of actual relative to potential output constantly at zero while restraining inflation in an open interval of (1.99, 2.0). The impact on the overall economy and the financial system of errors of policy are magnified by large-scale policy doses of trillions of dollars of quantitative easing and zero interest rates. The US economy has been experiencing financial repression as a result of negative real rates of interest in the past few years and programmed in monetary policy statements until 2014 or, for practical purposes, forever. The essential calculus of risk/return in capital budgeting and financial allocations has been distorted.

Table IB-6, CPI All Items, CPI Core and CPI Housing, 12-Month Percentage Change, NSA 2001-2012

May	CPI All Items	CPI Core ex Food and Energy	CPI Housing
2012	1.7	2.3	1.6
2011	3.6	1.5	1.2
2010	2.0	0.9	-0.5
2009	-1.3	1.8	0.5
2008	4.2	2.3	3.3
2007	2.7	2.2	3.3
2006	4.2	2.4	4.0
2005	2.8	2.2	3.0
2004	3.1	1.7	2.4
2003	2.1	1.6	2.7
2002	1.2	2.5	2.2
2001	3.6	2.5	4.6

Source: US Bureau of Labor Statistics

IC Import Export Prices. Chart IC-1 provides prices of total US imports 2001-2012. Prices fell during the contraction of 2001. Import price inflation accelerated after unconventional monetary policy of near zero interest rates in 2003-2004 and quantitative easing by withdrawing supply with the suspension of 30-year Treasury bond auctions. Slow pace of adjusting fed funds rates from 1 percent by increments of 25 basis points in 17 consecutive meetings of the Federal Open Market Committee (FOMC) between Jun 2004 and Jun 2006 continued to give impetus to carry trades. The reduction of fed funds rates toward zero in 2008 fueled a spectacular global hunt for yields that caused commodity price inflation in the middle of a global recession. After risk aversion in 2009 because of the announcement of TARP (Troubled Asset Relief Program) creating anxiety on “toxic assets” in bank balance sheets (see Cochrane and Zingales 2009), prices collapsed after unwinding carry trades. Renewed price increases returned with zero interest rates and quantitative easing. Monetary policy impulses in massive doses have driven inflation and valuation of risk financial assets in wide fluctuations over a decade.

Chart IC-1, US, Prices of Total US Imports 2001=100, 2001-2012

Chart IC-2 provides 12-month percentage changes of prices of total US imports from 2001 to 2012. The only plausible explanation for the wide oscillations is by the carry trade from unconventional monetary policy. Import prices jumped in 2008 during deep and protracted global recession driven by carry trades from zero interest rates to long, leveraged positions in commodity futures. Carry trades were unwound during the financial panic in the final quarter of 2008 that resulted in flight to government obligations. Import prices jumped again in 2009 with subdued risk aversion because US banks did not have unsustainable toxic assets. Import prices then fluctuated as carry trades were resumed during periods of risk appetite and unwound during risk aversion resulting from the European debt crisis.

Chart IC-2, US, Prices of Total US Imports, 12-Month Percentage Changes, 2001-2012

Chart IC-3 provides prices of US imports from 1982 to 2012. There is no similar episode to that of the increase of commodity prices in 2008 during a protracted and deep global recession with subsequent collapse during a flight into government obligations. Trade prices have been driven by carry trades created by unconventional monetary policy in the past decade.

Chart IC-3, US, Prices of Total US Imports, 2001=100, 1982-2012

Chart IC-4 provides 12-month percentage changes of US total imports from 1982 to 2012. There have not been wide consecutive oscillations as the ones during the global recession of IVQ2007 to IIQ2009.

Chart IC-4, US, Prices of Total US Imports, 12-Month Percentage Changes, 1982-2012

Chart IC-5 provides the index of US export prices from 2001 to 2012. Import and export prices have been driven by impulses of unconventional monetary policy in massive doses. The most recent segment in Chart IC-5 shows declining trend resulting from a combination of the world economic slowdown and the decline of commodity prices as carry trade exposures are unwound because of risk aversion to the sovereign debt crisis in Europe.

Chart IC-5, US, Prices of Total US Exports, 2001=100, 2001-2012

Chart IC-6 provides prices of US total exports from 1982 to 2012. The rise before the global recession from 2003 to 2008, driven by carry trades, is also unique in the series and is followed by another steep increase after risk aversion moderated in IQ2009.

Chart IC-6, US, Prices of Total US Exports, 2001=100, 1982-2012

Chart IC-7 provides 12-month percentage changes of total US exports from 1982 to 2012. The uniqueness of the oscillations around the global recession of IVQ2007 to IIQ2009 is clearly revealed.

Chart IC-7, US, Prices of Total US Exports, 12-Month Percentage Changes, 1982-2012

Twelve-month percentage changes of US prices of exports and imports are provided in Table IC-1. Import prices have been driven since 2003 by unconventional monetary policy of near zero interest rates influencing commodity prices according to moods of risk aversion. In a global recession without risk aversion until the panic of Sep 2008 with flight to government obligations, import prices rose 19.1 percent in the twelve months ending in May 2008 and fell 17.3 percent in the 12 months ending in May 2009 when risk aversion developed in 2008 until mid 2009. Import prices rose again sharply in May 2010 by 8.5 percent and in 2011 by 12.9 percent in the presence of zero interest rates with relaxed mood of risk aversion until carry trades were unwound in May 2011 and prior months. There is similar behavior of prices of imports ex fuels, exports and exports ex agricultural goods but less pronounced than for commodity-rich prices dominated by carry trades from zero interest rates. A critical event resulting from unconventional monetary policy driving higher commodity prices by carry trades is the deterioration of the terms of trade, or export prices relative to import prices, that has adversely affected US real income growth relative to what it would have been in the absence of unconventional monetary policy. Europe, Japan and other advanced economies have experienced similar deterioration of their terms of trade.

Table IC-1, US, Twelve-Month Percentage Rates of Change of Prices of Exports and Imports

	Imports	Imports Ex Fuels	Exports	Exports Non-Ag
May 2012	-0.3	1.0	-0.1	0.1
May 2011	12.9	4.5	9.1	7.0
May 2010	8.5	3.5	5.6	5.8
May 2009	-17.3	-4.1	-6.6	-5.6
May 2008	19.1	6.0	8.1	5.7
May 2007	1.2	2.4	4.6	3.6
May 2006	8.6	1.5	3.5	3.9
May 2005	5.9	2.0	2.5	3.7
May 2004	6.9	2.8	4.4	2.9
May 2003	1.0	0.2	1.7	1.0
May 2002	-3.7	NA	-1.6	-1.7
May 2001	-0.8	NA	-0.6	-0.6

Chart IC-8 shows the US monthly import price index of all commodities excluding fuels from 2001 to 2011. All curves of nominal values follow the same behavior under the influence of unconventional monetary policy. Zero interest rates without risk aversion result in jumps of nominal values while under strong risk aversion even with zero interest rates there are declines of nominal values.

Chart IC-8, US, Import Price Index All Commodities Excluding Fuels, 2001=100, 2001-2012

Source: US Bureau of Labor Statistics

Chart IC-9 provides 12-month percentage changes of the US import price index excluding fuels between 2001 and 2012. There is the same behavior of carry trades driving up without risk aversion and down with risk aversion prices of raw materials, commodities and food in international trade during the global recession of IVQ2007 to IIQ2009 and in previous and subsequent periods.

Chart IC-9, US, Import Price Index All Commodities Excluding Fuels, 12-Month Percentage Changes, 2002-2012

Source: US Bureau of Labor Statistics

Chart IC-10 provides the monthly US import price index ex petroleum from 2001 to 2012. Prices including or excluding commodities follow the same fluctuations and trends originating in impulses of unconventional monetary policy of zero interest rates.

Chart IC-10, US, Import Price Index ex Petroleum, 2001=100, 2001-2012

Source: US Bureau of Labor Statistics

Chart IC-11 provides the US import price index ex petroleum from 1982 to 2012. There is the same unique hump in 2008 caused by carry trades from zero interest rates to prices of commodities and raw materials.

Chart IC-11, US, Import Price Index ex Petroleum, 2001=100, 1982-2012

Source: US Bureau of Labor Statistics

Chart IC-12 provides 12-month percentage changes of the import price index ex petroleum from 1986 to 2012. The oscillations caused by the carry trade in increasing prices of commodities and raw materials without risk aversion and subsequently decreasing them during risk aversion are quite unique.

Chart IC-12, US, Import Price Index ex Petroleum, 12-Month Percentage Changes, 1986-2012

Source: US Bureau of Labor Statistics

http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=RCLC1&f=D

Chart IC-13 of the US Energy Information Administration provides the price of the crude oil futures contract from 1985 to 2012. There is the same hump in 2008 as in all charts caused by the common factor of carry trades from zero interest rates to commodity futures positions with risk appetite and subsequent decline when carry trades were unwound during shocks of risk aversion.

Chart IC-13, US, Crude Oil Futures Contract

Source: US Energy Information Administration

The price index of US imports of petroleum and petroleum products in shown in Chart IC-14. There is similar behavior of the curves all driven by the same impulses of monetary policy.

Chart IC-14, US, Import Price Index of Petroleum and Petroleum Products, 2001=100, 2001-2012

Source: US Bureau of Labor Statistics

Chart IC-15 provides the price index of petroleum and petroleum products from 1982 to 2012. The rise in prices during the global recession in 2008 and the decline after the flight to government obligations is unique in the history of the series. Increases in prices of trade in petroleum and petroleum products were induced by carry trades and declines by unwinding carry trades in flight to government obligations.

Chart IC-15, US, Import Price Index of Petroleum and Petroleum Products, 2001=100, 1982-2012

Source: US Bureau of Labor Statistics

Chart IC-16 provides 12-month percentage changes of the price index of US imports of petroleum and petroleum products from 1982 to 2012. There were wider oscillations in this index from 1999 to 2001 (see Barsky and Killian 2004 for an explanation).

Chart IC-16, US, Import Price Index of Petroleum and Petroleum Products, 12-Month Percentage Changes, 1982-2012

Source: US Bureau of Labor Statistics

The price index of US exports of agricultural commodities is in Chart IC-17 from 2001 to 2012. There are similar fluctuations and trends as in all other price index originating in unconventional monetary policy repeated over a decade. The most recent segment in 2011 has declining trend in a new flight from risk resulting from the sovereign debt crisis in Europe.

Chart IC-17, US, Exports Price Index of Agricultural Commodities, 2001=100, 2001-2012

Source: US Bureau of Labor Statistics

Chart IC-18 provides the price index of US exports of agricultural commodities from 1982 to 2012. The increase in 2008 in the middle of deep, protracted contraction was induced by unconventional monetary policy. The decline from 2008 into 2009 was caused by unwinding carry trades in a flight to government obligations. The increase into 2011 and current pause were also induced by unconventional monetary policy in waves of increases during relaxed risk aversion and declines during unwinding of positions because of aversion to financial risk.

Chart IC-18, US, Exports Price Index of Agricultural Commodities, 2001=100, 1982-2012

Source: US Bureau of Labor Statistics

Chart IC-19 provides 12-month percentage changes of the index of US exports of agricultural commodities from 1986 to 2012. The wide swings in 2008, 2009 and 2011 are only explained by unconventional monetary policy inducing carry trades from zero interest rates to commodity futures and reversals during risk aversion.

Chart IC-19, US, Exports Price Index of Agricultural Commodities, 12-Month Percentage Changes, 1986-2012

Source: US Bureau of Labor Statistics

Chart IC-20 shows the export price index of nonagricultural commodities from 2001 to 2012. Unconventional monetary policy of zero interest rates drove price behavior during the past decade. Policy has been based on the myth of stimulating the economy by climbing the negative slope of an imaginary short-term Phillips curve.

Chart IC-20, US, Exports Price Index of Nonagricultural Commodities, 2001=100, 2001-2012

Source: US Bureau of Labor Statistics

Chart IC-21 provides a longer perspective of the price index of US nonagricultural commodities from 1982 to 2012. Increases and decreases around the global contraction after 2007 were caused by carry trade induced by unconventional monetary policy.

Chart IC-21, US, Exports Price Index of Nonagricultural Commodities, 2001=100, 1982-2012

Source: US Bureau of Labor Statistics

Finally, Chart IC-22 provides 12-month percentage changes of the price index of US exports of nonagricultural commodities from 1986 to 2012. The wide swings before, during and after the global recession beginning in 2007 were caused by carry trades induced by unconventional monetary policy.

Chart IC-22, US, Exports Price Index of Nonagricultural Commodities, 12-Month Percentage Changes, 1986-2012

Source: US Bureau of Labor Statistics