FORGET THE BISCUITS, PASS THE B&B

There's much blithering and blathering going on since the European Union's year-on-year prices recently came in negative 0.2% for December.

Those in favor of oiling up the old printing press whiffed an opportunity only these folks can never fail to pass up. Prices are not the only things falling. If one listens to this crowd, so is the sky.

The Dragster himself, ECB leader Mario Draghi, worried out loud that such a decline might set off a wait-and-see-about-prices-until-tomorrow tantrum by consumers, thus causing further deflation in prices.

For those who care to beg the difference, here's a different point of view from: http://davidstockmanscontracorner.com/the-deflation-calamity-howlers-are-dead-wrong-in

So right on schedule comes this blithering nonsense from one James Ashley, purportedly an economist at RBS Capital Markets:

“The emergence of negative inflation does forcefully raise the specter of a possible prolonged period of deflation,” said James Ashley, an economist at RBC Capital Markets. “In other words, for those policy makers who, hitherto, might have been undecided over whether or not to take further action immediately, this may be just the clarion call that was required to appreciate the gravity of the situation.”

That’s right. A single month of hairline negative inflation is a “clarion call” no less—calling for the ECB to damn the monetary torpedoes. Could it be the RBC has been busy putting its clients and its own prop funds in Italian, Spanish, Portuguese and Greek bonds on the predicate that a big fat Italian bid would be forthcoming from the ECB?

In short, the euro zone’s momentary spat of year-over-year price stability is almost entirely owing to the global decline of commodities since the China bubble driven peaks of 2012; and also the lagged effect of the Euro’s strength prior to mid-2014.

In the case of non-food commodities including energy, for example, the producer price index is down about 25% from it 2011/12 peak.  Since the euro zone imports a heavy share of its energy and industrial commodities, isn’t this decline a welcome development?

And there’s more. Commodity prices are still double their pre-2005 level. In other words, the giant global commodity bubble generated by the runaway credit boom in China, the BRICs and their EM satellites has finally started to cool, and this relief is now washing through the euro zone price indices. Rather than an existential crisis, the cooling of euro zone inflation is mainly a welcome surcease from the utterly aberrational credit bubble that was foisted on the global economy by central banks over the past decade.