Bond Outlook by bridport & cie, April 13 2011

The argument that inflation is under control in the USA runs something like this:

• Commodity prices and a weak dollar are transitory phenomena
• They act as a tax on consumers
• They are not washing through to wage increases
• Food and energy costs are excluded from official data on core inflation
• Therefore there are no inflation worries

We do not find the argument convincing, but it is a reminder that markets have two sides, and that the Fed is promoting this very view.