By Michael Every of Rabobank
US 10-year yields fell further again yesterday, in an even more insistent view that there isn’t going to be any inflation. We are now back to 1.50%, meaning a whole new set of people shouting about how we were going to 2% or 3% or whatever percent just a few months ago now have more-expensive-than-a-few-months-ago egg on their face. That is of course as the May US CPI release today saw a 0.6% m/m gain to pushing headline inflation to 5.0%, a 28-year high, and even core inflation at 3.8% y/y. 1993! Where you, and what were was your inflation experience back then?
I was about to find work in Slovakia, which had just split from Czechoslovakia in a ‘velvet divorce’. No threatened ‘sausage wars’ there, as between the post-Brexit UK and EU: but only because there weren’t any sausages. I recall walking round Bratislava’s crumbling old town center, empty at the weekend as everyone went home to grow food in their countryside plots; finding the restaurants or bars which were open; and playing the game of what was actually on the menu, as opposed to what was listed. (Which, due to the Czechoslovak equivalent of Goskomstat, contained the precise weight in grams of each promised ingredient in the dish.) The wait staff would never tell you: the tradition was that you had to ask line by line, and they would repeat “nemáme” (we don’t have any) until you got to what they did. One paid in Czechoslovak banknotes, which a few months later got Slovak stickers. And inflation was 26% even though demand had collapsed. Given everything...