Elvis has left the building and so has the Inflation Genie. Actually, she made her exit several months ago.
Inflation is entirely a monetary phenomenon. As the late Nobel prize winner in economics, Dr. Milton Friedman, pointed out, inflation is due when you have too much money or credit chasing too few goods. The Bank of Japan has dramatically increased liquidity to bring their economy back after their devastating earthquake. Also, the U.S. Federal Reserve Bank along with the European Central Bank have both generously increased the supply of money to get their respective economies running again. To some degree they have been successful.
This large increases in credit creation has mostly found its way into the financial and commodity markets. The large increases in commodity prices (food grains, metals, oil, etc.) is now filtering its way into the general consumer price index. In the three months ending in February, 2011 the annualized consumer inflation rate was 5.6%. The Real Danger facing the U.S. economy is that Federal Reserve Bank will be slow to face the reality of galloping price increases. When the reality bites, they will be forced to dramatically raise interest rates to recapture the Inflation Genie.
I leave it to you to figure out what this will do to the stock market, the real estate market and the economy.
Be Solvent & Prosper!