Barron's Mike Santoli 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 a lot of the crowd.
As he notes above, most of Wall St. economists think inflation is low and going higher.
My view is the precise opposite of that: Inflation HAS been high, and it's 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 saying they are cutting back on Cap Ex and hiring).
Perhaps it's due to China, the supposed exporter of Deflation, is now exporting Inflation.
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, it's 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 . . .
Barron's, June 18, 2007
China's Inflation Accelerates, Adding Rate Pressure
By Nipa Piboontanasawat,
Bloomberg, March 13 2007