June 19, 2021

Rising Inflation Spooks Markets, but Should It?

“One thing can’t be any clearer here, the parts of the economy that are coming back don’t have enough inventory of product to supply the demand at current prices and the data making that case is overwhelming,” Rieder wrote. ‘While some of these price gains are transitory and will clearly be brought into balance in terms of supply/demand, other prices are moving much higher in some areas as the demand grossly eclipses the available supply.”

He noted the rising prices in semiconductors due to supply shortages and the rising prices in airline fares and lodging, reflecting growing demand as the economy recovers.

Inflation Expectations

Inflation expectations are rising along with prices as evidenced by the breakeven levels for Treasury Inflation Protected Securities (TIPS). The breakeven, which measures the difference between the yields of Treasuries and TIPS of similar…

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