Tags: Arnott | inflation | us | economy

Robert Arnott: One Way or Another, Monster Inflation is Coming

By    |   Wednesday, 11 April 2012 11:33 AM

Robert Arnott, chairman of investment advisory service Research Affiliates, says a major bout of inflation is approaching whether or not the economic recovery continues.

Like some other economists, he sees price increases arising from the Federal Reserve’s three-plus years of easing so far and its plan for another two-plus years of accommodation ahead.

“If the economy does gain traction, then monetary stimulus means higher inflation sooner than most people expect,” Arnott tells The New York Times.

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“If the economy falters, then the stimulus is going to be astronomical. That almost guarantees more inflation.”

Consumer prices rose 2.9 percent in the year through February.

Inflation, of course, is a major negative for bonds, so Arnott is a bear when it comes to Treasurys. And he likes U.S. stocks only a little better.

U.S. equities are “really cheap, compared to Treasury bonds and more expensive than almost everything else,” Arnott says. He’s enthusiastic about emerging market stocks and bonds, commodities, and junk bonds.

Junk bonds could benefit from higher inflation, as it would make the debt of companies issuing the bonds less expensive.

Not everyone shares Arnott’s concern about inflation, especially as energy is responsible for much of the recent price increases.

“Outside of energy prices, there is not much risk for the consumer.” Benjamin Reitzes, an economist at BMO Capital Markets, tells Bloomberg. “The Fed and most people realize that the increase [in energy prices] will probably be transitory.”

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