Rosenberg: If You Don't Think We're Staring At Deflation, Check This Out

Some interesting observations on price movements and labour costs from Gluskin-Sheff’s David Rosenerg:

As per the revised Q4 data, we now see that unit labour costs slid at a 5.9 %
annual rate, the third decline in the past four quarters.  On a year-over-year
basis, unit labour costs plunged 4.7%, which is unprecedented (the pre-revised
YoY trend was -2.8%).  As Chart 1 illustrates, there is a tight 82% correlation
between unit labour costs and the trend in headline inflation, which we can only
assume is going to fall sharply in coming months and quarters.  

By way of comparison, commodity prices only have a 33% correlation to the
inflation rate — in no small part because 60% of the CPI is in services and there
is a whole host of cyclical services ranging from hotels, to recreation, to rents
that are deflating, and deflating fast. 

chart

Photo: Gluskin-Sheff

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