Last Thursday, Bill Gross, chief investment officer of PIMCO, appeared on CNBC. Gross, known as “The King of Bonds,” told network viewers that inflation expectations for the United States should be around 3 to 4 percent for 2008 due to strong global demand for commodities. CNBC’s Robin Knight noted that Fed policymakers predicted in April that consumer prices, minus food and energy, would rise by only 2.2 to 2.4 percent this year. The problem, suggested Gross, is that economists and some central bankers are focusing too much on wage inflation, and too little on commodity inflation.

The founder and managing director of the PIMCO family of bond funds had this to say about how investors should operate within this environment:

CNBC: So how are you recommending, or how are you playing this environment then, Bill, with this strong inflation impact?
GROSS: Well, you know, it’s a bond negative. There’s no doubt about that. And it’s a commodity positive. That doesn’t mean that anyone can guess the price of oil in terms of its ups and downs on a daily basis. But, no doubt, you want to be in real assets that can re-price subject to supply and demand considerations on a global basis. You want to be out of fixed-income instruments that do not accurately reflect the current rate of inflation. That’s most egregious, I think, in the United States, less so in Euroland and the UK.

You can view the 6 minute 15 second CNBC segment here.

Source:

“Pimco’s Gross Says Rampant Inflation Here to Stay”
Robin Knight
CNBC, May 29, 2008

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