Inflation or Deflation? Which is the Consensual Opinion? Weekly Chart Update – 17/4/11

An update of the weekly google insights charts for 17/4/11. These charts are intended to help the contrarian investor gauge the prevailing opinion in the inflation vs deflation debate. The latest data points show that inflation worries are rising in excess of deflation fears.


The following charts show how searches for ‘inflation’ are competing with searches for ‘deflation’. The idea is that when ‘inflation’ searches are growing in excess of ‘deflation’ searches, inflation fears dominate. Conversely, when ‘deflation’ searches are growing in excess of ‘inflation’ searches, deflation fears dominate. The contrarian investment strategy would be to oppose either conviction at its extreme; that is, the contrarian should insure against deflation in an environment of hysteric inflation fears, and conversely insure against inflation in an environment of manic deflation worries.


The first chart uses plain search volume indices from google insights, whereas the second chart uses the relative out-performance of those indices (compared to searches about ‘finance & investing’). I invert the ‘deflation’ parts (red) to show how the two search items are competing with each other. When the blue parts are high, people are searching for ‘inflation’. When the red parts are very negative, people are searching for ‘deflation’. The black line is the aggregate of these two. When it is rising, inflation fears dominate, and when it is falling, deflation fears dominate.


Inflation Vs Deflation Chart - Plain Search Indices

Click to enlarge. Source: Google Insights

Inflation Vs Deflation Chart Relative Search Indices

Click to enlarge. Source: Google Insights


The charts indicate that inflation fears are reaching extreme levels – indeed, the indicators are at their highest points since 2008. The contrarian investor might begin to find some bargains in insuring against deflation from here.


Inflation or Deflation Free Ebook


See here for our collection of rare historical economic data.

Posted Apr 17, 2011