Outside the Box

Is Inflation Truly a Threat?

John Mauldin

September 13, 2004

Welcome to the inaugural edition of "Outside the Box." Each week, I read hundreds of articles, reports, books, newsletters, etc. Each week, I and my staff will bring you one essay which we think is worthy of your time. The only requirement is that the article should make us think, and perhaps challenge our assumptions. The subject matter will be quite varied and will come from many sources. There will be no requirement that I agree with the writer or the thinking, just that it offer thoughtful analysis which challenge our minds.

The first essay will come to us from my good friend, Gary Shilling, who has been enlightening me with his financial and economic commentary for many years. This letter will certainly be "Outside the Box" for many of you, as it will challenge some basic assumptions you have about the inflation/deflation debate.

Many readers of my weekly "Thoughts From the Frontline" write in to point out that they believe the Consumer Price Index (CPI) reported by the government understate the true inflation rate. Gary agrees that the CPI might not reflect the true inflation rate, but claims that the CPI is overstated rather than understated. The argument and data that follows might not change your views, but it will give you an alternate way to think about the CPI. And if Gary is right, that means long term rates may be coming down over time. It also has significant implications for Fed policy and our own investment portfolios.

So lets get ready to think "Outside the Box".

John Mauldin, Editor
Outside the Box

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Is Inflation Truly A Threat?

By Gary Shilling

A revival in inflation in the U.S. has been a major concern of investors. Until recently, the spotlight was on employment, but the recent pickup in payroll jobs, spotty as it may be, has convinced many that more stable job increases are ahead. So inflation worries have risen, along with the Consumer Price Index, in recent months. 

The Fed professes to not be overly concerned, despite the…

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