Inflation or Deflation? Which is the Consensual Opinion? Weekly Chart Update – 23/4/11
An update of the weekly inflation vs deflation indicator for 23/4/11. These indicators use google insights data to gauge the most consensual opinion in the famous inflation vs deflation debate. This week’s update shows that inflation worries continue to dominate.
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.
These charts show that – relative to recent history – inflation worries are at extreme levels. Now, although this trend may have some momentum behind it, the contrarian investor might start to find bargains in insuring against deflation.
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