Arthur Laffer advises in today’s Wall Street Journal that it’s time to “Get Ready for Inflation and Higher Interest Rates.” The market’s been telling us no less, as we’ve been discussing now for some time. Although the deflationary risk has been front and center since the financial crisis erupted last fall, the bigger challenge has always been the next phase, once the Federal Reserve succeeds in driving away the D risk.
One need only review the market’s changing forecast of inflation in recent months to recognize that the future isn’t likely to look like the past. In charts we’ve been posting semi-regularly, such as here and here,, the trend is clear: pricing power is returning. Yes, it’s coming off an extraordinarily low base, which exacerbates the relative comparisons. But there’s no question that the central bank has been using extraordinarily potent measures to resuscitate inflation from the grave. As we’ve been saying all along, we have every confidence that Ben Bernanke and company will be successful.