It’s interesting to watch the Fed try to blow up the inflation bubble at the same time other countries around the world are trying to deflate it. Last night Chile raised interest rates by 25 bps to 3.5%, the highest since Mar ’09 and China this morning raised reserve requirements again by 50 bps. The Yuan also appreciated to a new high vs the US$. In their decision, the Chilean central bank said “private inflation expectations are showing increases, particularly in the short term.” ECB member Smaghi hinted that they would have to raise interest rates if inflation becomes more of a problem after German PPI rose twice expectations m/o/m and the y/o/y gain is now 5.7%, the most since Oct ’08. Canada’s CPI rose 2.3% y/o/y, .1% less than expected but 2%+ for a 4th straight month. Portugal’s 10 yr bond yield is at a new record high at 7.57%, up 11 bps on the day and higher by 50 bps over the past two weeks. A bailout for them looks more likely with funding rates at these levels. The pound is at the highest since Nov after a good UK retail sales report.
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