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Inflation Consensus?

Posted By Barry Ritholtz On June 20, 2007 @ 7:02 am In Commodities,Federal Reserve,Fixed Income/Interest Rates,Inflation,Psychology | Comments Disabled

Barron’s Mike Santoli [1] writes:

"It’s fashionable on Wall Street to strike a maverick’s pose and carp that "nobody" recognizes the real threat of inflation that’s being papered-over by the supposed deceit of government data pushers. Yet the just-released Merrill Lynch fund-manager survey for June shows a net 47% of respondents saying core inflation will be higher in the next year, up from a net 11% in March.

So, looking for more inflation is anything but a contrarian stance. And if there’s a buildup of inflationary danger, it’s in the process of being absorbed by the market."

Mike raises an interesting point here about the crowd’s view of inflation: What once was the subversive contrary stance — Inflation is stronger than reported, and the BLS data is "uninformative" — has gained traction amongst alot of the crowd.

As he notes above, most of Wall St economist’s think inflation is low and going higher. 

My view is the precise opposite of that: Inflation HAS been high, and its likely to go lower as the economy decelerates.

I’m not sure why that cadre of economists thinks core inflation is going up — unless they are convinced the 2H acceleration is on schedule (despite the recent CFO survey [2] saying they are cutting back on Cap Ex and hiring).

Perhaps its due to China, the supposed exporter of Deflation, is now exporting Inflation [3]

The very obvious slowing of GDP should certainly shave off some CPi/PPi inflation pressures — but that doesn’t change the reality that inflation is higher than has been reported. And if the crowd has finally discovered that, well, its about time.

I never attempt to be contrarian for its own sake — but I do like to know how "built in" my views are. And Mike raises a valid issue . . .


Liquid Courage? [1]
Barron’s, June 18, 2007

  [4]China’s Inflation Accelerates,  Adding Rate Pressure [3]
By Nipa Piboontanasawat,
Bloomberg, March 13 2007

Article printed from The Big Picture: http://www.ritholtz.com/blog

URL to article: http://www.ritholtz.com/blog/2007/06/inflation-consensus/

URLs in this post:

[1] Barron’s Mike Santoli: http://online.barrons.com/article/SB118137051073830193.html

[2] CFO survey: http://www.dukenews.duke.edu/2007/06/cfo_survey.html

[3] exporting Inflation: http://www.bloomberg.com/apps/news?pid=email_en&refer=&sid=aAN9tDEhA9Mk

[4]  : http://economictimes.indiatimes.com/News/International__Business/Chinese_inflation_at_2-year_high_puts_pressures_on_rates/articleshow/2118548.cms

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