From Jon Markman via Yahoo:
"Deflation" and "boom" are not
two words that normally go together. They are almost like "sad
happiness," "lo-cal donut." But in their very unlikely pairing they
appear to do a good job of explaining the unusual economic and market
environment that may lie ahead.
It’s a term discussed this week
by Cornerstone Macro analyst Francois Trahan to describe a rare
condition in which a country’s economic activity rises but inflation
falls. He believes that is the right interpretation of the Philadelphia
Fed data released on Tuesday that showed output in the region up but
prices paid falling, as shown in the chart below.
The
improvement of the Philly Fed can be seen in part as a result of the
stimulative effect of falling crude oil prices, and their ripple effect
on the broad economy. The chart below, created by Cornerstone, shows the
Philly Fed Index (green line) charted against the six-month percent
change in the price of Brent Oil, advanced four months (gray) and
inverted.
The
oil price is advanced four months to show the lagged effect that oil
has on economic activity. In other words, when oil falls in price it
takes about four months for the change to have an effect on end users’
decisions....
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