What We Are Thinking (WWAT?)

There's no doubt at all: during the last two weeks, the world is back on deflation-watch.

To recap, what this chart tracks is Google's normalized score for the frequency with which financial searches worldwide looked up 'inflation', minus the score for 'deflation', and smoothing to a 10-day average. In its way, it is the biggest rolling survey of global preoccupations there has ever been. A month ago, the relative interest in 'inflation' was at its peak for the year; now far more people are looking up 'deflation' than 'inflation'.

I think there are three comments worth making;

First, the swing towards concern about deflation is far more pronounced than the swing from thinking about 'growth & recovery' rather than 'recession and depression' which we tracked last week (and which, most surprisingly, is making a slight recovery towards growth this week.)

Second, this is not, alas, an early indicator – the US bond markets anticipated the change in What We Are Thinking by almost exactly a month.

Third, no intensification of deflationary forces is yet showing up in the world's inflation data.

Most inflation data is arriving roughly in line with consensus (so far this week French CPI, Korean trade prices, German WPI, and Japanese Domestic Corporate Goods Prices; last week China's CPI and PPI, US PPI, German and Spanish & Taiwanese CPI). If anything, over the last month the news has been of inflationary pressures slightly greater than anticipated: India's WPI, Britain's PPI, Japan's Corporate Services PI, Singapore's PPI, and the US ISM Manufacturing survey of prices paid were all slightly higher than expectations. Only French PPI, Korean CPI and PPI, and Taiwanese WPI hinted at a current disinflationary shock.