MacroResearchBoard

Repeating The BoJ Mistake Of The 1980s – July 19, 2021

A just-published report introduced our new proprietary MRB Total Inflation Measure that provides a more wholistic perspective of the inflation pressures brewing within the U.S. economy. Our premise is that consumer price inflation is too narrow of a measure to judge inflationary pressures within an economy, and the buildup in underlying vulnerabilities.

There is widespread inflationary pressures within the U.S., and most developed market economies, particularly asset and credit inflation. In recent decades, central bank’s myopic focus on CPI to guide policy has created persistent asset bubbles and then economic/debt crises when the bust phase develops. Central bank inflation (CPI) targeting has frequently missed building imbalances and led to painful global policy blunders. One of the largest “mistakes” occurred in Japan during the 1980s, which was followed by a disastrous outcome for several decades for the economy, real estate and equity market.

With the Fed and other major central banks determined to lag the economic recovery and rise in inflation, a repeat of sorts is inevitable. Stay tuned.