When Will Inflation Kick in Again?

January 12, 2021, 11:14 am ET, BY Thomas H. Kee Jr- Editor, Stock Traders Daily| Editor: Thomas H. Kee Jr. (Follow on LinkedIn)

Inflation concerns are front and center on Wall Street as the dollar index rises, and additional excess liquidity is set to be proposed.  With over $9 Trillion in fabricated asset demand already infused over the past 10 months by Central Banks, an imminent inflationary environment seems set to exist.

However, our assessment is that inflation will not ramp up until such time as natural asset demand also ramps up.  The Natural Rate of Change of the amount of NEW Money available to be invested into the US economy, which is another way of saying new asset demand, is measured by our proprietary macro analysis, The Investment Rate (IR).

Review The Investment Rate

The IR has been declining since December 2007, when the longer term trend peaked and started to decline measurably.

The asset demand growth being witnessed in the economy since then has been largely due to stimulus measures.  The capital infusions since 2012 in particular have resulted in additional monies for institutions and high net worth individuals to buy asset such as stocks and real estate.  In those asset classes inflation has been increasing at an unparalleled rate, but the level of the stock market does not impact CPI or PPI.

The central bank actions were specifically designed to spur investment-based asset prices higher, but they are not impacting inflation.

The inflation rate is affected by natural forces, and the natural rate of change in the amount of NEW Money available to be invested into the US economy is still declining from the December 2007 peak in the IR.

Until the third major down period in US History comes to an end, according to the Investment Rate, inflation is likely to remain subdued.

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