How concerned are you about inflation?

Posted by on March 27, 2013 @ 10:00 am in Economy & markets

What does the future hold for inflation? Vanguard Chief Economist Joe Davis talks about which indicators to watch.


Clearly, the concerns over inflation are probably the biggest question I get.  It’s from almost anyone I talk to.  There is clearly the risk that inflation could accelerate over the next several years. That is not currently expected by the bond market, it’s not expected by the Federal Reserve, and it’s certainly not my mainstream or baseline expectation.

Given what Fed policy is doing, they clearly want, at the margin, the risk of a stronger recovery and, hence, greater wage pressure and, hence, greater inflation risk.

What are the odds of us returning to the seventies and early eighties when inflation was double digit, I think those odds are low; they could change.  I think the greatest indicator for all of us to watch would be things such as wage pressures because that has been canary in the coal mine with respect to future inflation risk.

Right now, inflation is where – wage growth is where inflation is – which is around 1.5, 2%. So unless those conditions materially change, I don’t think we’re talking about a markedly higher inflation world.