Gonzalo Lira: Signs Hyperinflation Is Arriving
The market is ‘baking in” significant inflation. Investors are buying United States government bonds that effectively had a negative rate of return, because these bonds offer a guaranteed protection against inflation. (TIPS). The investors who took part in the $10 billion auction are betting that inflation, now at about 1 percent annually, will rise to a level that more than compensates for the premium they paid.
The Inflation ‘Genie’ Unleashed: “By reducing real interest rates and trying to break the psychology of ‘Why spend today when I can buy goods cheaper tomorrow,’ they are hoping to drive growth that would be more commensurate with a pickup in employment,” said Dan Greenhaus, chief economic strategist at Miller Tabak & Co. in New York.”
Reader S.D. in Dallas notes: “The price of a vegetable side dish at our workplace cafeteria is increasing next week from $1.29 to $1.49, a 15% increase. Last year the price was $0.89, so the prices have almost doubled in the last two years. The price on all menu items have increased also, so most days I choose to stay a bit hungry on vegetables instead of paying an extra $3.50 for an entrée! I also avoid the meat because it does not taste natural. I can’t wait to start raising rabbits!”
Chart of the Week: Inflation in the Real World
Overnight Rates Soar to 13% on Shortage of Peso Bills: Argentina Credit