IT'S IMPOSSIBLE TO OVERSTATE DEFLATIONARY PRESSURES:

The only reason inflation would rise again is with another shock. The Covid supply shock was ebbing away which made the Fed think inflation was temporary, but then another shock -- the Ukraine war -- gave prices a boost again. But now prices are headed down and inflation is temporary, unless another Covid shock comes along, say. And unfortunately, central bankers have little clue on how to fix deflation and the kind of depressed economy that follows.

The longest timeline on the path of inflation that exists anywhere is instructive. The data is downloadable from the Bank of England in "FRED" and shows Consumer Price Inflation for the U.K. since 1210. (The U.S. for age reasons can't compete.) The chart shows after bursts of high inflation, it's common to see years of falling prices. Deflation occurred in 340 of these years. High inflation is not usually followed by nearly as high inflation. Historically that doesn't happen.

Oil prices have been sliding as have the prices of many commodities. An important signal of what is coming is the Baltic Dry Index, which collapsed in June 2008 ahead of that year's economic crisis and is in freefall again. It is the daily price of renting giant ships called capesize vessels, which are too big to go through the Suez or Panama canals. Prices are announced at 10 a.m. daily on the Baltic Exchange in London; wheat and coal are dry, oil is wet. BDIY was 5600 in November and today it is 1100 and the cost of shipping containers has halved in 2022. None of this is a surprise given that China's economy is slowing, with the lowest growth rate in 40 years and the Eurozone and the U.K. are already in recession. When global demand is falling, ships stop sailing and prices drop. Deflation is the fear.

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