Complacency

Inflation is a global problem and it is slowly picking up again, not only in the U.S., but across the globe. In the chart below, you can see the latest CPI reports for different economies, and in most instances, prices are higher than they were in August. That should trigger a more restrictive monetary policy response. But central banks seem to be in a difficult spot, as unemployment is also going up, and economies are slowing down, conditioned by debt. What we are likely to see in the months going forward is a technical justification of why central banks should abandon specific inflation targets (like 2%) and the acceptance and normalization of higher inflation rates. We are also witnessing how official entities like the BLS will “massage” inflation numbers with guesstimates under the excuse of lack of resources or the government shutdown. And the only question remaining is when will the bond market will call the bluff. Even if there are deflationary forces, they should be captured in the CPI numbers, but the bond market appears to be too complacent.

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