The trend is deflation, not the other thing

Author: Adam Button | Category: News

I have written about this often so I won’t repeat myself but the the most misunderstood phenomenon in macro economics in the past decade has been deflation.

It’s a story that has been missed by almost everyone.

In short: Moving manufacturing and  has allowed companies to reap tremendous profits but consumer prices have been sticky. As a result, a bubble in retail square footage has formed. Over time, it will slowly correct as companies compete for consumer dollars. It’s the great unseen long-term trend in developed economies.

Don’t believe me? Visit a dollar store and marvel at the quantity, quality and complexity of the things you can buy there. In addition, realize that dollar store margins are around 32%, meaning it’s only costing the company 68-cents to get those items on the shelves.

Today’s evidence the trend to lower prices is accelerating: A UK 99-pence store has just cut its prices to 97-pence.

On Thursday, US CPI is expected to fall to 1.3% y/y — the lowest since 2010.

US CPI yy

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