Inflation and Deflation at the Same Time

Want to get married? Just look in the Bombay newspaper:

“Alliance invited for a Punjabi girl, 40/5.5…stammering a bit, physically healthy…totally homely…”

Not very good advertising. Probably because they use the world “homely” in a different way…

How about this?

“Highly affluent cultured Kolkata-based Hindu Agarwal Family (originally from Rajasthan) invites proposals for their ‘USA based’ daughter. She is fair, slim, smart…”


“A Reputed Agarwal family having Established Business of Garment Exports/Builders seek alliance for their Daughter. Fair, Slim, Very beautiful, Convent educated… Boy should be handsome, well Educated/Settled from similar status cultured business family…”

The paper is full of possibilities. But it helps to be ‘fair’…often described as “wheatish,” well-educated… And from a good family.

No mention of money. But “cultured” and professional and education figure prominently.

So why spend so much effort trying to get rich? All you need is an engineering degree, a masters, from MIT, and you can get a beautiful, wheatish girl from the Punjab.

Wait…here’s the money…

“Maharashtrian Deshastha Brahmin well-established business family invites alliance for their daughter, fair, beautiful, 28, 4′ 11″, B.A. Journalism…” wants a qualified, good personality boy…with a minimum income of Rs. 1 Lakh per month.”

How much is a lakh? More below…

Meanwhile, the Dow fell on Friday. It was down 37 points. Another day older. Another day not wiser. We don’t know any more than we did the day before.

Oil fell $1. Gold dropped $19.

Hmmm… Inflation? Deflation? Analysts and pundits are trying to look into the future. What’s coming? Higher prices…or lower ones?

Forget looking into the future. It’s hard enough to tell what is going on right now.

Our prediction, years ago, was that we would see BOTH inflation and deflation. But even we didn’t foresee such a mix of inflation and deflation AT THE SAME TIME.

In India, which we left this morning, food prices are soaring.

“Consumer boom drives rapid rise in inflation,” says The Financial Times.

In parts of India, the price of tomatoes rose 200% in just a few days.

The “inflation genie is getting out of the bottle,” is the FT’s comment.

Worldwide, at the wholesale level, there’s plenty of inflation. Oil has gone up 115% since January ’09. West Texas Intermediate is now selling for $85 a barrel. Iron ore is up 95% during the same period.

There’s also something called the Rind Index that measures the commodities that people don’t usually pay any attention to – things like burlap and animal hides. These things are used by industries to make things. There’s not much speculative buying. But there’s plenty of inflation. The Rind Index is up 50% since January ’09.

Prices are rising in China too. Guangdong, a large state in South China, next to Hong Kong, has just raised its minimum wage by 20%. Believe it or not, the papers tell of a labor shortage in China. There are said to be some 2 million unfilled jobs in the Pearl River Delta area, says the FT.

(Dear Readers looking for employment might want to think twice before packing their bags and going to China. After the wage increase, the minimum monthly salary in Guangzhou, the provincial capital, is still only 1,030 renminbi…or about $145.)

Inflation…inflation…inflation everywhere…

But wait. The Fed says there’s no inflation:

“With substantial resource slack to restrain cost pressures…inflation is likely to be subdued for some time.”

The Fed is right…as far as it goes. CPI readings in the US are coming in at their lowest levels in six years. Most businesses have plenty of excess capacity. The labor market has 11 million surplus workers. The dollar is strong. China is desperate for customers. Why should prices rise?

But that’s what they’re doing. Rising. And falling. At the same time. Hot money from the feds – and “growth” in China and elsewhere – drive up prices for raw materials… while the Great Correction drives down consumer prices in the US and Europe.

How will this work out? Which one will dominate – inflation or deflation?

It depends. So far, the feds are winning their battle – at least on the surface. Stocks are up. Commodities are up. Junk bonds are up.

But we’re still betting that the major trend…the deeper and more important trend…is down. You wouldn’t know it from reading the paper or watching the TV. On the surface, the crisis is over. And maybe it really is. But it’s a bad bet. Because the risk is still on the downside.

If the feds succeed, maybe they can keep the credit bubble – now focused public sector credit – pumped up a bit longer. But so what? What can you win by betting on even higher stock, bond and commodity prices? Probably not very much.

The downside, on the other hand, is like the Grand Canyon…deep…and treacherous…

Bill Bonner
for Markets and Money

Bill Bonner

Bill Bonner

Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America’s most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind Markets and Money.
Bill Bonner

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“How will this work out? Which one will dominate – inflation or deflation?” How about the ‘inflation or deflation?’ debate is a red herring? They might just be the same thing, spring from the same well, be the two sides of the same coin? Zimbabwe has suffered hyper-inflation of its currency, yet a complete deflationary collapse of its economy. It’s grainaries are empty, people have been slaughtering their breeding livestock, the mines shut down, catastrophic unemployment, people forced to pan for gold in the country to survive; a lady recently told me that during the 1930’s her father, as a… Read more »
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