W E A L T H M A N A G E M E N T
Too Much of a Good ThinG?
This article examines lowflation, a precursor to deflation,
and its implications for the economy and investors.
18
17
16
15
14
13
12
January-‐29
August-‐29
March-‐30
October-‐30
May-‐31
Consumer Price Index
December-‐31
July-‐32
1929-‐1941
February-‐33
September-‐33
April-‐34
November-‐34
June-‐35
January-‐36
August-‐36
March-‐37
October-‐37
May-‐38
December-‐38
July-‐39
February-‐40
September-‐40
April-‐41
November-‐41
CPI
245
240
235
230
225
220
215
210
205
200
January-‐07
June-‐07
November-‐07
April-‐08
Consumer Price Index
September-‐08
February-‐09
2007 -‐ 2014
July-‐09
December-‐09
May-‐10
October-‐10
March-‐11
August-‐11
January-‐12
June-‐12
November-‐12
April-‐13
September-‐13
February-‐14
July-‐14
CPI
Source: Bureau of Labor Statistics, Monthly Consumer Price Index, All Urban Consumers. The CPI base in 1982.
According to Morgan Stanley economists, lowflation marks the point at which prices are rising at well Reserve’s target inflation rate for months, even years, persistently teetering on the edge of deflation. At lowflation can exert its own steady, downward pull, all the more insidious because it can be so low-key
Economists have mapped out three major side effects from lowflation: the higher cost of repaying loans hold a lot of debt; the inability to cut real interest rates when nominal rates are near, or at, zero; and the banks’ credibility as they fail to meet inflation targets and start to run out of policy options.
Focusing on the Future
Economic growth may return to historical levels as the US economy continues to recover its footing in the Great Recession. In the meantime, we can expect additional central bank intervention, domestic and
Have you re-evaluated your saving and investing program to take into account the current economic policies posed by low prices? Let me help you assess the situation and weigh the alternatives.
Footnotes/Disclaimers
Source: Bureau of Labor Statistics, Monthly Consumer Price Index,
All Urban Consumers. The CPI base was set to 100 in 1982.
Economists have mapped out three major side effects from
lowflation: the higher cost of repaying loans for those who hold
a lot of debt; the inability to cut real interest rates when nominal
rates are near, or at, zero; and the damage to central banks’
credibility as they fail to meet inflation targets and start to run
out of policy options.
Focusing on the Future
Economic growth may return to historical levels as the US
economy continues to recover its footing in the aftermath of
the Great Recession. In the meantime, we can expect additional
central bank intervention, domestic and foreign.
Have you re-evaluated your saving and investing program to
take into account the current economic policies and the risks
posed by low prices? Let me help you assess the situation and
weigh the alternatives.
1
Source: Wealth Management Systems Inc. Calculations made from published monthly CPI from the Bureau Statistics: November 1929 = 17.3, May 1933 = 12.6, July 2008 = 219.964, December 2008 = 210.228.
Ami Forte is Managing Director-Wealth Management/Wealth
Advisor of The Forte Group at Morgan Stanley located at 4114
Woodlands Parkway, Suite 200, Palm Harbor, FL 34685 and may be
reached at 727-773-4610 or ami.forte@morganstanley.com. Ami has
been featured in publications such as Business Week and The Dow
Jones Newswire.
Jim Streitmatter, Senior Vice President, Financial Advisor;
Chuck Lawrence, Vice President, Financial Advisor;
Ami K. Forte, Managing Director, Wealth Advisor;
Evan P. Forte, CRPS©, Financial Advisor
Maintaining stable prices is one of the three pillars of US
monetary policy. Although commonly associated with
inflation, price stability also seeks to manage lowflation, or
worse deflation, which is just as disruptive to a growing economy.
Measuring the Impact of Falling Prices
The US economy had two periods of sustained price declines in
the past 100 years. From late 1929 to early 1933, prices fell at an
annualized rate of 8.7%. From the middle to the end of 2008, prices
fell at an annualized rate of 10.3%.1 These price declines marked
two severe economic contractions, the Great Depression of the
1930s and the Great Recession of 2008-2009.
The average consumer who learned about The Great Depression
in high school, or more recently, watched news accounts of Japan’s
economic meltdown beginning in the mid-1990s, understands
why deflation can send an economy into a downward spiral. But
what is so bad about lowflation, especially as the effect has been
low interest rates, and a price decline in some everyday goods and
services, such as gasoline?
According to Morgan Stanley economists, lowflation marks the
point at which prices are rising at well below the Federal Reserve’s
target inflation rate for months, even years, persistently teetering
on the edge of deflation. At this level, lowflation can exert its own
steady, downward pull, all the more insidious because it can be so
low-key and off-the-radar.
If you’d like to learn more, please contact Ami Forte.
Article by Wealth Management Systems, Inc. and provided courtesy of Morgan Stanley Financial Advisor.
The author(s) are not employees of Morgan Stanley Smith Barney LLC (“Morgan Stanley”). The opinions expressed by the authors are solely their own and do not necessarily reflect those of Morgan Stanley. The information and
data in the article or publication has been obtained from sources outside of Morgan Stanley and Morgan Stanley makes no representations or guarantees as to the accuracy or completeness of information or data from sources
outside of Morgan Stanley. Neither the information provided nor any opinion expressed constitutes a solicitation by Morgan Stanley with respect to the purchase or sale of any security, investment, strategy or product that may
be mentioned.
Morgan Stanley Financial Advisor(s) engaged Tampa Bay Magazine to feature this article.
Ami Forte may only transact business in states where he/she is registered or excluded or exempted from registration Insert FINRA Broker Check http://brokercheck.finra.org/Search/Search.aspx. Transacting business,
follow-up and individualized responses involving either effecting or attempting to effect transactions in securities, or the rendering of personalized investment advice for compensation, will not be made to persons in states
where Ami Forte is not registered or excluded or exempt from registration.
© 2015 Morgan Stanley Smith Barney LLC. Member SIPC.
CRC 1232482 06/15
1Source: Wealth Management Systems Inc. Calculations made from published monthly CPI from the Bureau of Labor Statistics: November 1929 = 17.3, May 1933 = 12.6, July 2008 = 219.964, December 2008 = 210.228.
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