It appears that inflation is going to be defeated. To make a proper assessment of that, you should focus your sights on the United States. That is the largest and most significant economy in the world.
You can use several indicators for that. But one of the best is the difference between the ten-year interest rate on U.S. government bonds and the three-month interest rate.
Normally, the interest rate increases as the term of a loan gets longer. If you lend money as a lender for ten years, the money is exposed to various risks during that time. You want to be covered for that with a higher interest rate.
However, this does not mean that there cannot be exceptions. In this case, the so-called yield curve is inverted. And while you can never say anything with 100 percent certainty, the difference between the ten-year and three-month interest rates in the United States has turned negative right before each recession in the past decades. And if we look at the difference now, we must conclude that it is also negative.
It should be noted, however, that this difference only turned negative in October 2022. History teaches us that when this difference becomes negative, a recession often follows twelve months later. If you extend the line from October, the U.S. economy should enter a recession in the fall of this year.
Oliver I. Kjeldsen has a corporate finance and extensive expertise in company audit. He grants us amazing insights on taxation, international affairs and friendly advice on nearly any topic of interest. His email is oliver.kjeldsen@economicinform.com
