Inflation: The good, the bad and the ugly

After years of worry about deflation, there is increasing evidence that developed country markets are going in the opposite direction - the recovery of inflation

For those concerned about long-term economic stagnation, this is certain, but inflation has many camouflage.

Inflation may have many reasons. It can be demand driven or cost driven, it can be wide area base or single element, it can be generated or imported at home, can be temporary or permanent.

Today, all seed types are found in several major markets, dominant factors vary from economy to economy.

In some cases, the rise in inflation is a good sign of economic health, but in other cases it is bad news and there is no peaceful signal for a potential economic recovery. Prospective pessimism is an ugly contrast

As investment companies strive to protect their portfolios from corrosion, it is very important to know which type of inflation to handle for long-term strategic investment decisions.

Total CPI inflation rate in the US recorded the highest in two years. A part of the reaction is due to external factors, but there is sufficient evidence to indicate that domestic inflationary pressures have increased

Because the service penetration rate is declining, the rise in service prices usually reflects domestic pressure against commodity prices.

The rise in core inflation rates shows the impact of rising wages on the supply chain as the labor market is fully employed. In other words, the rise in the inflation rate in the United States reflects the strength of the domestic economy.

Given the acceleration of anticipated economic growth this year and the potential for the Cheong Wa Dae to promote fiscal stimulus measures, we expect stable growth of "good" inflation will continue.

One approach would be to hold the Ministry of Finance inflation protection (index linked) securities. It may benefit from further inflationary surprises.

However, not only the symptoms of inflation related to growth but also other investments solved the cause. Corporate bonds and stocks should work well in this environment, especially in light of the Trump administration's business-oriented recommendations.

The story of the euro area is different. The overall inflation rate rose sharply in the last six months and increased by a full percentage point, but there are few signs of change in the core inflation rate and the overall growth rate can be calculated almost by energy price.

Even if the world can see the impact of these energy prices, this is the opposite of the good inflation we observe in the United States.

After being shocked by recent signs of inflation, we are in the midst of inflationary control and are in the stock market. I report changes in inflation and are committed to excluding fears in excessive situations and warning in the right case. Last week the market received three noteworthy inflation signals, one good, one bad, and one an ugly signal. If you missed it, the US stock market has always been favorable, as the January Employment Status Report showed an average sharp rise in revenue per hour. The compensation inflation index showed a 9% increase over the previous year. As a result, the long-term loss of stock market volatility resumed, and the correction of 10% of Standard & Poor's 500 index (SPY) continued. But based on my observations of the US dollar, I think the market seems to be worried that the Fed is not just inflation. Since then, the market has paid close attention to all indicators of inflation and reaction.

In some cases, the rise in inflation is a good sign of economic health, but in other cases it is bad news and there is no peaceful signal for a potential economic recovery. Prospective pessimism is an ugly contrast

Why is inflation bad? Inflation is not bad if you are running at a predictable rate of 1 to 3% per year. When the inflation rate begins to fall to 5%, 10%, 50%, 100%, it may not afford to buy future products and savings and investment abruptly lose their purchasing power, so things are outrageous It will be something. Or you just can not plan your economic future. Before inflation runaway, the Fed should raise interest rates. As we face conflict by inflation, it is too late for the Fed to become effective due to the delayed effect of monetary policy. Higher interest rates slowed the demand for borrowing, which slowed production, employment growth and investment. As a result, the inflation rate will eventually decline.