The Investment Scientist

Inflation Ahead?

[Adapted from my Morningstar contribution] A year ago this month, after a trip to China I wrote ominously about inflation hitting the US economy like a tsunami.

My opinion was based on two observations:

1. China’s labor costs were galloping at a 20% to 30% clip per year, and so much of what we consume is produced in China now.
2. The Fed was printing money like crazy.

So far I have been wrong. The February 2011 inflation rate was 2.11%; though a slight uptick from 1.63% in January, it was by no mean a tsunami. Recently, Fed Chairman Ben Bernanke testified before the Senate Banking Committee that the Fed projects an inflation rate of less than 2% for the next 3 years.

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