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Looking for Mr. Good Inflation

April 25th, 2014 - 6:29 am

It has to happen. We’ve been waiting for it to happen. And yet, the Fed’s inflation target remains as elusive as robust jobs growth. Is it finally happening? Read the latest market news on inflation:

“I think there is some inflation pressure around,” said Jack Ablin, CIO of BMO Private Bank. “Netflix had a high-profile announcement. They’re starting to raise prices. I think there has been a lot of inflation pressure underneath the surface, not the least of which is coming from the job market … whether or not that translates to broad-based price increases still remains to be seen.”

While analysts say some level of inflation is healthy, rising inflation could pose a dilemma for the Federal Reserve as it winds down the stimulus from its bond-buying program. The Fed has targeted a 2 percent inflation rate as a threshold for raising short-term interest rates while also promising to keep rates low for a long time to come.

“I think it’s encouraging actually,” Ablin said. “As inflation expectations rise, that could encourage business to actually expand.”

Inflation always feels great — at first. Bigger profits, bigger paychecks. But then costs and prices start rising faster than the profits and the paychecks, and suddenly it doesn’t feel so good anymore. And your savings begin, in real terms, to actually shrink. That’s when the party is over.

Except for debtors, who have their debts shrunk down like magic.

Can you think of any major debtors who might not mind if inflation could make their problems much more manageably smaller? Say, some institution or other with 17 or so trillion reasons?

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>> some institution or other with 17 or so trillion reasons?

Exactly. That's what the Barclay banking scandal of 18 months or so ago was all about. For quite some time, western governments have been colluding to finance their debt by keeping interest rates abnormally low. They've been using this tactic to indirectly tax the savers, who can't get enough of a return to keep the value of their savings even level. That'll go on until it can't. Then look out.

It's been the year of the grasshopper for quite some time, but the ant will be heard in the end.
20 weeks ago
20 weeks ago Link To Comment
Doing the "I just bought a house with a low interest rate and a 30 fixed loan" dance. Go go go!
20 weeks ago
20 weeks ago Link To Comment
apparently mr.albin doesn't buy food or gasoline or even heat his home. but netflix, there is an indicator that he notices.
20 weeks ago
20 weeks ago Link To Comment
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