Exponential Decay of Inflation

Yesterday, I wrote about the connection between inflation and corporate profits. (link) I posted this graph. (quarterly data since 1958 to 1st quarter 2016)

inf corp5

The graph shows how inflation drops as net corporate profits rise.

Net corporate profit rate = Corporate profits/GDP – nominal interest rate

The trend line (bright red curving downward) implies an exponential decay of inflation. We have been at the decay extreme since the crisis. Currently the net profit rate has backed off a bit from the extreme to around 6% to 7%.