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Where The US Is Importing All The "Evil" Deflation From, In One Chart

A year after the Fed injected $1 trillion into the stock market, the US economy was supposed to show stable, benign inflation north of 2%, validating stable, benign "growth" and pushing yields well into the mid-3% range. It failed to do that, stumping many a Keynesian hack who can't explain how it is possible that inflation (at least the variety measured by the BLS, not the real type, like food, energy, tuition costs, and healthcare which is considered largely irrelevant) has so far failed to spring up.

For all those hacks, here is the answer in one simple chart.

Still confused?

The reason why the BLS' seasonally and hedonically-adjusted core inflation has failed to rise is because Japan, courtesy of its far greater on a relative basis QE and its crashing Yen, has been exporting deflation to the US hand over fist, and as the import price index released moments ago confirmed, imported deflation courtesy of Japan, whose index just dropped to 98.5 pushing overall import prices lower by -0.5%, is the biggest since mid-2010.

And since its is an interconnected, fungible world, one can either have a soaring Nikkei (in Yen terms if flat in USD) and plunging Yen, leading to ridiculous Japanese inflation imports (just ask the locals in Tokyo how much of their wages they spend on food, energy and anything that is imported these days) and a near-record Japanese misery index, or one can have the much desired US inflation, one can't have both.

Which, poetically, also means that when it comes to global growth, Fedonomics and Abenomics mutually offset each other.

Source: BLS