Janet Yellen, President of San Francisco Fed, ruled out stagflation scenario and she forecast “the most likely outcome over the next couple of years is that total and core inflation will moderate from present levels”. But she thinks “The Federal Reserve cannot, however, be complacent about inflation”.

She somewhat shares the worry that “even if the direct influences of commodity prices on inflation eventually dissipate, they could still cause trouble…higher inflation could become built into inflation expectations and become self-perpetuating”. But she thinks so far there is no evidence for such case, especially inflation is very unlikely to pass on to the wage this time, causing a wage-price spiral like the 70s.

The full speech can be read here and her presentation slides here. Below are two nice charts from her presentation.

A nice house rent-versus-buy calculator from NYT, and related article.

In previous post, I analyzed inflation and hot money inflow in China. Now here is a piece from Michael Pettis. In it, he analayzes the composition of China’s capital inflow in the first four months of 2008.

“If this is true that means that reserves grew in the month of April by $74.5 billion, the biggest one-month reserve jump in China’s history (and probably in the history of the world)…

To get a sense of scale, in 2006 reserves were up $247 billion for the whole year. This, at the time, was a number guaranteed to shock. No central bank in history has seen reserve growth at anywhere near this scale. Nonetheless in 2007, the growth in reported reserves nearly doubled over the previous year — $462 billion – and more than doubled if we backed out a series of transactions that reduced headline reserve growth but had no net impact on the monetization of currency inflows…”

(click to enlarge, courtesy of Michael Pettis)

WSJ reports: Americans expect prices to rise by a median of 3.4% a year during the next five to 10 years, the highest expectation since 1995, according to the latest Reuters/University of Michigan consumer-sentiment survey, released Friday. The number was 2.9% as recently as March.

More worrisome, consumers, on average, expect prices to increase 5.2% in the next 12 months, the highest level for an expected rise since 1982. Meanwhile, the gap in yields is widening between Treasury bonds that are indexed to inflation and those that aren’t, suggesting investors also think prices will keep climbing.

(click to enlarge. source: FRED)