BlackRock: "We Like Gold"

BlackRock has joined Pacific Investment Management Co. in recommending inflation-linked bonds and warning price inflation is poised to pick up.

“Stabilizing oil prices and a tighter labor market could contribute to rising actual, and expected, U.S. inflation,” Richard Turnill, BlackRock's global chief investment strategist, wrote Monday on the company's website. “We like inflation-linked bonds and gold as diversifiers.” New York-based BlackRock manages $4.6 trillion.

“If you look at inflation expectations as they are reflected in the bond market we think they are too low,” Joachim Fels, global economic adviser for PIMCO, said. “We still think markets are pricing in too low a profile for inflation. We don't think inflation will move significantly above central bank's targets but we think that there's a good chance that over the next 12 months or so, particularly in the U.S., that we will get back to 2%.”

In the EPJ Daily Alert, I am not only advising that price inflation will pick up but that the intensity of the acceleration will surprise most. First stop, 3% price inflation, which will be dismissed by most as "noise," then 5%.

This is not the type of environment where the Fed is going to reverse its December hike and certainly not the kind of environment where they are going to take rates negative. There will be more rate hikes this year but they will be too little too late to slow the price inflation.

-RW