“Inflation is not going to be transitory,” the chief economic adviser at Allianz (DE:ALVG) SE said in an interview on Bloomberg TV’s The Open show. “I’ve been pretty certain in my mind about three prior calls. This is the fourth one.”
El-Erian likened it to his belief in 1999 that Argentina would default, which came true two years later; his conviction that Brazil wouldn’t default, which proved true; and his call that the economy was in a ‘New Normal’ of slower growth coming out of the financial crisis more than a decade ago.
Inflation as measured by consumer prices increased an unexpectedly large 5.4% in the year through June as the economy’s ongoing recovery from the Covid-19 pandemic gained traction.
Chairman Jerome Powell, author of the now-famous “transitory” tag on current inflation, and his colleagues at the Federal Reserve are missing what is happening with companies and their pricing power, said El-Erian, who also is chair of Gramercy Funds Management.
“I have a whole list of companies that have announced price increases, that have told us they expect further price increases, and that they expect them to stick,” El-Erian said.
He explains the current 10-year Treasury yield is below 1.3% because the Fed is injecting liquidity into the market with monthly purchases of $120 billion in securities.
“The Fed should ease its foot slowly off the accelerator,” he said.
El-Erian, former chief executive officer of Pimco, now owned by Allianz, is a Bloomberg Opinion columnist. His views do not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
©2021 Bloomberg L.P.
Source: Economy - investing.com
