Retail Reality

There has been a continuous parade, or glut, of the World’s Central bankers’ of late, all trying to give re-assurance that the “global recovery” is on track, despite GDP slipping lower within the US, the UK, the Euro-Zone, Japan and China

They have also been at pains not to mention the dreaded “D” word, DE-Flation, as they are only too aware (or should be) that it’s the last thing needed when the world is drowning in debt, as it negates any chance of inflating the debt away.

Economic growth, as measured by GDP, has “consumption” representing about 70% of it within the major economies, with China now trying to follow suit. This is fine when debt levels are low, but doesn’t work that well when debt levels are high, acting as a “drag anchor” on economic growth and reduces consumption, thereby lowering the price of “stuff.” Put simply:

High Debt = Falling GDP = Falling Prices = Falling Retail Sales = Falling CPI

As mentioned within our “Investment Markets Overview,” of last week, US retail sales for October came in below forecasts, as did the Nation’s wholesale inflation, aka PPI, for the same month. A comparison of retail sales against CPI, both annualised, confirms the fact that a de-flationary trend discourages purchases, as people naturally wait for even lower prices.:

 18 Nov 15 Blog

This week the UK announced disappointing retail sales with CPI teetering on DE-Flation, with a similar picture building within the other major economies.

The Central Banker’s may try to avoid the word, but it’s a reality coming your way real soon.

 

 

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