With gold above $2,000 and central banks flooding the world with cash, the prospect of surging inflation is again starting to exert a grip on the minds of investors. Concern is premature: Deflation remains the bigger threat.
There’s little sign of a meaningful spurt in consumer prices, even after five months of unparalleled easing in fiscal and monetary policy to combat the pandemic. Not that you’d know it from some market commentary. Believers in a looming inflation spiral cite gold’s almost daily records and a slide in the dollar. Inflation expectations as measured by the U.S. 10-year breakeven rate have risen by more than a percentage point to 1.6% from a 12-year low in March. The Federal Reserve has contributed to the zeitgeist with its insistence that it isn’t even thinking about raising interest rates, amid signs the economic recovery will be unimpressive enough to warrant further stimulus.
It may all prove another false dawn. Bumps in consumer prices across Asia last month don’t disrupt the essential story of the past decade: Inflation just isn’t firing and remains significantly below the modest targets of around 2% typically set by central banks. The crushing