Inflation will remain high

Investment Analysis Clubs Macro Economic Trends and Risks
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Anyone who owns I-series Savings Bonds or TIPS is interested in the CPI-U inflation rate, since these securities pay interest which is based on this rate.

Paul Krugman has written an article that says that the inflation rate will stay high even if inflation pressures lessen. This is because the Bureau of Labor Statistics (BLS) calculates the CPI based on an average.

The Bureau of Labor Statistics, which produces the Consumer Price Index, measures housing prices using rents — actual rents on apartments and an estimate of what homeowners would be paying if they were renting their residences. Rental costs surged in 2021. Since many housing units are on long-term leases, average rents lag behind a surge in new-rental prices. This muting effect on sudden changes is similar to using a moving average. The moving average will rise and fall gradually as new data points are worked in.

There’s a lot of measured housing inflation still in the pipeline, inflation that will show up in the official numbers even if new-rental prices level off.

https://www.nytimes.com/2022/01/07/opinion/inflation-2022-us…

New I-Bonds are currently yielding 7.12%. Since “Team Transitory” is taking a beating, I expect this yield to continue through 2022.

https://www.treasurydirect.gov/indiv/research/indepth/ibonds…

Wendy

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One of the points Krugman made, in the column that Wendy linked to, was that we can expect ongoing high inflation readings for at least six more months according to the commonly used year over year comparisons. I.e. gasoline prices rose strongly from the pandemic lockdown low to a peak in late 2021. Since then they’ve gone sideways to down, but the year over year comparison is still going to show high inflation until about August, even if prices don’t rise any more from here.

https://www.nytimes.com/2022/01/07/opinion/inflation-2022-us…

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or TIPS

I’ve asked a number of times … why would anyone ever buy TIPS today? You are essentially guaranteeing a negative real return over the term of the bond. Now I obviously know that you may be guaranteeing a less negative real return than some other options, but there are investments that roughly track the real economy over the long-term, and those, despite some volatility now and then, are still a better option for most people.

So who is buying all the TIPS? I haven’t bought any in at least 10 years, possibly longer, as I can recall.

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