Inflation? Hyperinflation?

I keep reading and hearing about the risk of soaring inflation and even hyperinflation with the Fed’s quantatative easing campaign. Now, there’s isn’t much question that inflationary pressures will emerge when the economy regains its footing. It’s a safe forecast that the Fed will confront a tricky monetary policy act when it starts tightening. I’m sure we’ll go through some inflation scares.

But high and rising inflation or hyperinflation? I don’t see it. For instance, investors that are snapping up Treasury Inflation Protected Securities, better known as TIPS, are forecasting that inflation will average about 1.4% over the next decade. That’s far from hyperinflation, and below the Fed’s CPI target range of about 2%. You would think investors would demand more of an inflation hedge if the threat of hyperinflation was real.

I still think the long term trend is toward disinflation or even deflation in an increasingly integrated world economy. Plus, central bankers have a pretty good intellectual tool kit when it comes to bringing inflation under control. What central bankers don’t really understand, what they disagree on is how to handle bubbles, market booms and market busts.