It’s easy for Ben Bernanke to pump more money into the system as long as official inflation measures remain subdued.
But trouble is looming. Commodities are heading up. Rents are heading up. And quietly capacity utilization is heading up. That means that the slack in the economy is disappearing, and as Morgan Stanley notes, a hike in the CPI can’t be far behind.
When this happens, Bernanke will be in a serious bind because there’s a good chance the labour market and housing market will still be weak. But a higher CPI will make it much more difficult to keep pumping.