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A Framework That Provides Clarity

During periods of “low visibility,” confusion reigns: for every indication of one trend, there seems to be a countertrend. The key is to glean from the collective wisdom of reliable leading indicators a clear signal that the economy is headed for a turn.

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Becoming Japan (Part 2)


Earlier this year we pointed out that, with the U.S. and other major Western economies experiencing slower growth in the last five years than Japan in its lost decades, long-term trend growth had already downshifted around the world, resulting in weaker recoveries and more frequent recessions than most had expected when the 21st century began. Following Japan’s lost-decades example, the policy response has been more and more quantitative easing, which has been unable to break this pattern.

Rather, in the U.S. and the Eurozone, the central banks are increasingly failing to meet critical inflation target mandates. In reality, these major economies are already like Japan in its lost decades, recalling the economic truism that recession kills inflation. 

Indeed, harmonized CPI inflation fell to just 0.7% in the Eurozone in October. But in the U.S. it had already fallen to 0.8% by September, when inflation in both economies dropped below that in Japan.

Ominously, ECRI’s Future Inflation Gauges remain in cyclical downturns in both the U.S. and the Eurozone. Thus, in the coming months, inflation is likely to fall further below their official targets in both economies.

Related News & Events

Major Central Bank Actions in Line with ECRI

Bloomberg November 4, 2013

ECRI's Lakshman Achuthan joined Bloomberg TV this morning to discuss central bank actions. More

 

Becoming Japan (Part 1)

ECRI July 30, 2013

Japan’s lost decades showed faster GDP growth than in the U.S. and other major economies in the last five years. More