Tags: david | Rosenberg | Oil | us | Big | Worry | Deflation

Rosenberg: Oil Isn’t US's Big Worry — Deflation Is

By    |   Friday, 25 Feb 2011 08:31 AM

Oil’s surge above $100 a barrel has sent many economists into a tizzy of worry that a spike in inflation is coming. But David Rosenberg, chief economist at Gluskin Sheff + Associates, says they have it all wrong. The real worry is deflation, he says.

Indeed, the recent decline in bond yields tells us deflation already is here, he argues. The 10-year Treasury note has dropped 28 basis points to 3.43 percent in just two weeks, despite a massive increase in supply and news of selling by Pimco star Bill Gross.

“The bond market is telling you something very important here that rather than being a permanent source of inflation, what we are witnessing is a global exogenous deflationary shock,” Rosenberg writes in a note obtained by Business Insider.

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A sign advertises gasoline prices in Chicago.
The idea is that the rise in oil prices and other commodities will lead consumers to avoid pulling their wallets out of their pockets. “The impact on discretionary spending in America will be considerable,” Rosenberg says.

Recent declines in stock markets around the globe carry the same deflationary message, Rosenberg says.

Some economists think the U.S. is at risk of a double-dip recession, though they say it is inflation rather than deflation that creates this risk.

Rising oil prices represent "a significant drain on consumer budgets that could put a drag on the recovery," James Hamilton, an economist at the University of California-San Diego, tells The Wall Street Journal.

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Oil s surge above $100 a barrel has sent many economists into a tizzy of worry that a spike in inflation is coming. But David Rosenberg, chief economist at Gluskin Sheff + Associates, says they have it all wrong. The real worry is deflation, he says. Indeed, the recent...
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2011-31-25
Friday, 25 Feb 2011 08:31 AM
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