Saturday, September 25, 2010

A Week Of Inflation

U.S. Market movements this week:

-The S&P 500 gained 2.1%.
-10-Year Nominal Treasury yield dropped 14 basis points to 2.60%, while the 10-Year Real Treasury yield dropped 17 basis points from 1.00% to 0.81%.
-The dollar index fell 2.6%.
-The CRB commodity price index rose 1.4%.

In other words, the prices of stocks, bonds, foreign currencies and commodities all rose this week. When the prices of some of them rise and others fall, it could reflect other factors such as falling or increasing optimism about the economy, but when they all rise we have inflation.

One reason for this seems to be an increased belief that the Fed will take additional action to inflate the economy, something which in itself has an inflationary impact by reducing demand for money.

However, we have also seen a pick up in money supply growth. After declining somewhat for nearly a year, MZM growth has turned positive again, increasing more than 2% in 3 months, translating into an annualized rate of over 8%.