Rising deflationary risks in the US

Sober Look says that there is rising deflationary risks in the United States that may deter the Federal Reserve from raising interest rates.

It notes that intermediate-term market-based inflation expectations have fallen to 2009 levels, when deflation was a serious concern.

Meanwhile, energy prices have been falling, and not just for oil. Natural gas, coal and even uranium prices have also fallen.

While there may be positive effects from the fall in energy prices, it also says that some industries in the energy sector will be severely disrupted, resulting in debt restructuring, consolidation and job losses.

Apart from energy prices, wage growth has started to fall. The employment report for December showed that average hourly earnings fell 0.2 percent.

Also, the PriceStats CPI trend (online-price-based CPI-tracking model) has fallen to 2009 levels.

Sober Look concludes:

Putting it all together points to rising risks of deflation in the US. There is absolutely no way the Fed can raise rates in this environment. In fact some Fed officials are quite open about taking any 2015 rate hikes off the table.