Observing inflation data from the U.S. economy, item by item. Found that double-digit price increases start in 2003/04 and that 2007/08 have been INFLATIONARY SHOCKS TO THE ECONOMY. Plugging up the DXY chart, USDollar peaked in 2003/04 and trough in 2008. What’s the conclusion?
Multi-Year Currency depreciations are a Financial Crisis in the making that then reflects into Assets prices corrections, including tangible assets such as HOUSING PRICES & REITs in aggregate. The financial & liquidity crisis manifests itself as an INFLATIONARY SHOCK to prices. Although, a Financial & liquidity crisis with a consistent decline in tangible assets prices and REITs prices, would presume a deflationary spiral. That could be misleading because there’s to factor in the cumulative multi-year depreciation of the exchange rate, (Inflationary), with the cliff-edge decline in tangible asset prices as HOUSING stock and REITs in aggregate, that feed through as a reduction in Households Purchasing Power, cumulated with the multi-year INFLATIONARY exchange rate depreciation.
data series below: Milk prices data. In the table below, the 2003/04 Milk price Standard deviation in 2003= 12,1%, while in 2004 the Milk price Standard deviation=26,1%, important to bear in mind in 2004 the Dollar Index (DXY) peaked in its uptrend. Another data that correlates with Inflationary Price shocks as precursory signs of Financial Crisis, can be seen with the 2007 Standard Deviation=35,95% of Milk prices.
Then everybody remembers that in 2007 the Great Financial Crisis kicks in with the Deleveraging of tangible asset prices, and HOUSING PRICES collapse in a large-scale Housing Market Debt Default and Credit Derivatives Default.
Unemployment derived by declines in tangible assets such as consistent Housing Markets declines become in the first instance a continuous INFLATIONARY SHOCK to PURCHASING POWER and INCOMES, that only thereafter pass through the expenditure and the marginal propensity to consume factors becoming a decrease in consumer spending activities and thereby deflating consumer and aggregate demand in the economy, only in these circumstances aggregate supply adjusts to below potential and average trend economic growth, considering the shrinkage in labor productivity inputs, decline in disposable income and marginal propensity to consume, determine decreases in aggregate savings and investments in the economy, that coincides with private sector debt default domino effects determined by excessive debt leverage linked to inflated and mispriced assets prices in Real Estate Markets.
Rice Prices, produced a one-year 11.71% standard deviation increase in 2008, Which equates to the entire Rice prices data set Standard Deviation of 12.35%. The median price for a 454g pack of rice = 0.55$
However, Rice data series table, for all prices from 1980 up until 2007, the month-to-month average price has been in line with the historical average price of $0.55 After 2008 the average Rice prices have been substantially above average
The U.S. city average Chicken prices started increasing in 2007 with American Households defaulting and the unraveling of banks and the Financial Industry
Important to observe the average Chicken prices, a food ingredient widely consumed, produced, and utilized on an industrial scale. What has been observed: the average (453.6 gr) of Chicken price between 1980 and 2004, when the Dollar Index Peaks, was along the two decades a stable price very similar to the whole data series median price of $1.05. What increased the price in the two decades between 1980 and 2004 have been the New Millenium years from 1998 to 2001, that reflects how the year 2000 dot.com bubble, in other words, speculative stock market activities and malinvestments, then produced a wider Inflationary effect in the economy, that also explains how Inflated Financial Assets prices then correlate in some measure with Inflationary pressures on goods and services prices in the economy.
What happens to Chicken prices after 2004?
In 2007 with the preliminary signs of a wider and systemic financial crisis in the making, the U.S. city average Chicken (453.6gm) price increased to $ 1.13, compared to the $1.05 median price. That means in 2007 with American Households defaulting on debt and the financial industry going into meltdown, the average price for food increased, in this case, the median /453.6gm) Chicken price increased by $0.08 cents to $1.13 dollar with peaks of $1.16, compared to the data series median of $1.05, give or take a median 7.6% price inflation increase only in 2007. After the 2007/09 Global Financial Crisis and with the implementation of Quantitative Easing and the unforeseen and without measure expansion of Money Supply globally; observing the data series becomes easy to understand that the Average (453,6gm) Chicken price has only increased since after 2007/09 and taking the December 2021 average price recorded $1.60 dollar this price it’s more than double the price in December 1980 $0.76, while indeed the average (453,6gm) Chicken price in 2022 until recently has been $1.79.
Gasoline prices Data Series proves a 94,31% standard deviation and 88,94% Variance from the 1976 base price of $0,60, and the 1970s were Inflationary shock years
Gasoline prices dataset. The graph elaborates on $3.785/per gallon. However, the median and average price for all dataseries= $1.81 Average, Median $ 1.31. In December 2008 Gasoline prices were $ 1.69, converging to the median estimated historical price.
for instance Sigma Chart of Gasoline prices. Peaked 73.2% yearly Standard Deviation 2008. We can observe that Gasoline prices could produce again a 73,2% sigma, before decreasing to $1.69 dollar per gallon.
The Global Financial Crisis brought a decrease in disposable and aggregate national income with declining retail sales, but retail prices have been only rising since 2007
The Deflationary shock to the economy during the GFC can be seen only in 2009, right after the Housing Market & its credit derivatives collapsed. However, decreasing Inflation with Unemployment takes several Million Unemployed people, with very irrelevant change in Sales volumes
Excessive Debt Leverage for House Holds has already increased well above the GFC levels, and the sensitivity to interest rates and borrowing costs has become greater, with that higher risk of private sector debt defaults on a wider and systemic scale.