James Picerno at the Capital Spectator asks: Is inflation still contained?.
[I]n light of yesterday's report on the producer price index, inflation looks notoriously uncontained. The PPI soared 1.7% in October... Adding insult to injury, this morning's consumer price index...advanced by a robust 0.6% last month, up from 0.2% in September. On an annual basis, CPI is rising at 3.2% through October, the second-highest year-over-year rate in about three years.
Inflation, it seems, is not only something less than contained, it's escaped and running.
The yield on the 10-year Treasury is significant in the last 24 hours for its lethargy... Gold, by comparison...is now priced at its highest since 1988.
The dollar too has reacted by dropping like a rock, thereby supporting gold's climb... The currency's weakness is all the more poignant in light of news yesterday from the U.S. Treasury that foreign central bank purchases of Treasuries dipped sharply in September to $10.1 billion from $19.1 billion the month previous... [G]iven the PPI data, not to mention the fact that Fed funds is still negative in real (inflation-adjusted) terms and thus inflationary raises anew the question of how long foreigners will continue financing the federal budget deficit by snapping up Treasuries like there's no tomorrow?
...The answer is necessarily unclear, in large part because central banks are...pursuing a trade that is almost surely a losing proposition. Indeed, the central banks of Japan, China, and elsewhere in Asia are inclined to buy Treasuries for reasons of a) keeping their domestic export machines humming and b) ensuring that their already heft Treasury holdings don't lose large amounts of value in the wake of letting the dollar find a truly free-market price...
A post at Brad DeLong's blog titled "The Chinese Credit Market" points to a related reason for China's persistent US dollar-buying: It is trying to inflate away its debt problems.