(Bloomberg) -- Deflation would be as much of an issue for the U.S. as it is for the euro region if consumer prices were tracked the same way, according to Albert Edwards, a global strategist at Societe Generale SA.
The CHART OF THE DAY helps illustrate how Edwards drew his conclusion, presented in a report yesterday. He tracked changes in the core U.S. consumer-price index, which excludes food and energy, and the CPI for shelter.
Core inflation in December was 1.6 percent, according to the Labor Department. That’s 0.9 percentage point more than the euro region’s comparable figure, as compiled by Eurostat. This gap disappears after bringing the U.S. figure into line with Eurostat’s definition of housing, Edwards wrote.
“The deflationary fault line on which the U.S. sits is every bit as precarious as that of the euro zone, but is being disguised,” the London-based strategist wrote. “The scales will soon lift from the market’s eyes.”
Ten-year Treasury notes are headed for yields of less than 1 percent as the deflation threat grows, according to Edwards. The yield stood at 1.81 percent yesterday
after ending last month at 1.64 percent.
The adjusted U.S. data exclude owners’ equivalent rent, or the estimated cost borne by homeowners who live in their houses as opposed to renting them out. The euro region doesn’t have a similar category.