Concerns about Inflation remain Elevated

An update of the weekly google insights indicators for 28/6/11. Fears of deflation made ground against worries about inflation over the past week. However, as can be seen on the charts below, concerns about inflation remain elevated.

 

The following two charts use data from google insights (google’s tool for gauging patterns in search) to figure out the prevailing opinion in the inflation vs deflation debate. The idea is to show how searches for ‘inflation’ are competing with searches for ‘deflation’. When people are searching for ‘inflation’ with greater vigor than they are searching for ‘deflation’, it is assumed that inflation fears dominate. Conversely, when people are searching for ‘deflation’ with greater vigor than they are searching for ‘inflation’, it is assumed that deflation fears dominate. The contrarian investor can use these indicators to oppose each conviction at its extreme.

 

inflation vs deflation indicator chart

Click to enlarge. Source: Google Insights

 

inflation vs deflation indicator chart (relative)

Click to enlarge. Source: Google Insights

 

[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’). We 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.]

 

As can be seen on the charts above, deflation fears have made headway against inflation worries over the past few weeks. Despite this, it is also clear that we are a long way away from an extreme in deflation fears. As we have maintained over the past month or so, the contrarian asymmetry in the ‘deflation trade’ may have gone, but there remains significant potential for further extension of financial panic about deflationary credit contraction.

See here for our collection of rare historical economic data.

Posted Jun 28, 2011