Bill Gross, head of the world's biggest bond fund, says inflation is now a real threat to the U.S. economy, and that government statistics are "not reflecting reality at the checkout counter."
Gross, chief investment officer of Pacific Investment Management Co (Pimco), says the statistical practices in determining price growth had favored lower U.S. inflation over the last 25 years. A change in the way inflation is calculated would be helpful, he told cable news channel CNBC.
"Today's world, including its inflation rate, is changing. Being fooled some of the time is no sin, but being fooled all of the time is intolerable," Gross says.
Gross decries the "market's assumption of low relative U.S. inflation in comparison to our global competitors."
Gross recommend that investors seeking safety from inflation risk should invest overseas. Inflation is something of a "stealth" threat to investors, Gross argues, as it eats away at real savings and investment returns.
Other economic gurus are starting to agree.
The Society of Actuaries released a survey that indicated that inflation is the top retirement risk concern of pre-retirees and those already retired from work.
"The study also found that women are more concerned about inflation’s affect on retirement investments than men," Stephanie Lynn Schumann, a spokeswoman for the group, based in suburban Chicago, tells Moneynews.
There are some offsetting figures, however, which balance out concerns over inflation.
"Clearly we are suffering from higher commodity prices across the board," Donald P. Gould, founder of Gould Asset Management, Claremont, Calif., tells Moneynews.
"However, higher prices in one area, especially goods that we can’t easily do without, such as food and gasoline, tends to dampen price increases elsewhere in the economy since there is less money left over to buy other things."
Gould says that inflation could become a significant economic threat if long-term economic expectations change, and a "wage-price spiral" ensues. "I view that as unlikely, but certainly not impossible; witness the 1970s," says Gould.
Short-term, Gould says it may be risky for investors with inflation fears to move their money out of U.S. treasuries and into equities in Brazil, Russia, India, and China, the so-called BRIC countries.
"BRIC equities may be an excellent long-term investment, but to suggest this kind of asset allocation is to ignore the huge differences in risk between treasuries and emerging market equities," says Gould.
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