A Quarter Century Old Disinflation
July 28, 2014
The fear of too much inflation still strikes a more sensitive nerve than the fear of too little inflation. The basic complaint against the ultra-accommodative monetary policies around the world is that this is a recipe for high inflation in the future. The writing on the walls, a climb in expected inflation, is predicted to happen even sooner. Meanwhile, few critics argue that credit policies should be set even looser.
A critical component of price expectations can be found in long-term interest rates, and there the story is a different one. The table below documents calendar year highs in Japanese, U.S., German and British ten-year sovereign debt yield highs. Two other lines shows the highs during the first half of 2014 and today’s closing levels. Japan’s close today of 0.52% is the lowest level in the whole table. One has to go back to 1999 to find a 10-year JGB level of 2.0% or more, which is a far cry from the peak of 8.72% back in 1990. The 10-year bund today of 1.15% is 79 basis points under this year’s peak, and in no full prior year did such fail to exceed 2.00% at some point. The 10-year Treasury yield of 2.48% is over 50 basis points below this year’s peak and only 11 basis points above the low in 2012. Even though the Bank of England stopped quantitative easing more than a year and a half ago and is dropping clues by the day that its base rate is likely to be increased before yearend, the current 10-year gilt yield of 2.58% exceeds only the 2012 high in this table and remains more than 10 percentage points below the 1990 peak.
| 10-Yr highs | Japan | U.S. | Germany | U.K. |
| 1990 | 8.72% | 9.07% | 9.12% | 12.70% |
| 1991 | 7.13% | 8.37% | 9.03% | 10.88% |
| 1992 | 5.71% | 7.76% | 8.15% | 10.06% |
| 1993 | 4.67% | 6.74% | 7.13% | 8.98% |
| 1994 | 4.79% | 8.02% | 7.75% | 9.04% |
| 1995 | 4.74% | 7.88% | 7.74% | 8.79% |
| 1996 | 3.45% | 7.05% | 6.56% | 8.23% |
| 1997 | 2.97% | 6.97% | 6.03% | 7.72% |
| 1998 | 2.01% | 5.78% | 5.35% | 6.30% |
| 1999 | 2.36% | 6.44% | 5.46% | 5.84% |
| 2000 | 1.97% | 5.71% | 5.64% | 5.84% |
| 2001 | 1.63% | 5.52% | 5.18% | 5.36% |
| 2002 | 1.56% | 5.41% | 5.25% | 5.33% |
| 2003 | 1.67% | 4.64% | 4.56% | 5.10% |
| 2004 | 1.94% | 4.87% | 4.30% | 5.26% |
| 2005 | 1.52% | 4.67% | 3.79% | 4.87% |
| 2006 | 1.99% | 5.24% | 4.11% | 4.77% |
| 2007 | 1.98% | 5.33% | 4.69% | 5.57% |
| 2008 | 1.87% | 4.38% | 4.68% | 5.26% |
| 2009 | 1.56% | 3.94% | 3.72% | 4.08% |
| 2010 | 1.18% | 3.19% | 2.78% | 3.52% |
| 2011 | 1.34% | 3.74% | 3.49% | 3.88% |
| 2012 | 1.05% | 2.37% | 2.06% | 2.45% |
| 2013 | 0.92% | 3.03% | 2.04% | 3.07% |
| 1H14 | 0.74% | 3.03% | 1.94% | 3.03% |
| 07/28/14 | 0.52% | 2.48% | 1.15% | 2.58% |
A final thought to take away from the table is the similarity among the four economies of the patterns formed by the calendar year long-term interest rate highs. Even in Germany whose regional central bank resisted quantitative stimulus, one finds a 25-year-long downtrend. Monetary policy in the world is conducted locally, but but inflation, it would seem, has global properties as well.
Copyright 2014, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
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