Home > Inflation, Unemployment > 2017 means reflation – but what about the Trump Matrix.

2017 means reflation – but what about the Trump Matrix.

December 21, 2016 Leave a comment Go to comments

Below is a useful graph from the National Australia Bank’s 2017 Outlook. It shows the inflation relative to the central target rate – so for New Zealand the current inflation rate is 0.4% but the policy target agreement is 1 – 3% with a target of 2%. Therefore NZ is 1.6% short of their inflation target.

Inflation globally has been a record lows and according to the IMF “cyclical unemployment and weaker import (commodity) prices can account for the bulk of the deviation of inflation from (central bank) targets …..but other unexplained factors have been playing an increasingly larger role”

Inflation relative to CB target.png

In 2017 it is predicted that higher commodity prices and wages will lift global inflation. With the US Fed raising interest rates there is the sense that inflation could be on its way up.  Also spare capacity is forecast to reduce in most advantage countries with the US already at full employment.

A Trump policy of protectionism and expansionary fiscal policy would definitely mean a more hawkish US Fed. If he does follow this agenda the US will initially experience some kind of stagnation environment, but given the chance for trade retaliation this could quickly lead to a global recession which could eventually push the world close to a secular stagnation scenario of low growth, low inflation, and low productivity. Below is a very informative matrix from NN Investment Partners.

Trump Matrix

Trump Matrix.png

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