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Can't buy the government's inflation stats? Neither can he

May 23, 2008 |  6:00 am

Anyone who believes that the government lies, or at least fibs, about the real inflation rate will enjoy the latest commentary by the Pimco funds’ bond guru, Bill Gross.

How, he wonders, can the U.S. have an annualized inflation rate around 4% while global inflation indexes say prices are rising at about a 7% rate?

Grossfoto "Somebody’s been foolin’, perhaps foolin’ themselves," Gross writes from Newport Beach.

He goes on: "The correct measure of inflation matters in a number of areas, not the least of which are Social Security payments and wage-bargaining adjustments. There is no doubt that an artificially low number favors government and corporations as opposed to ordinary citizens."

If you can’t make it through Gross’ discussion of why the real U.S. inflation rate is higher than Uncle Sam’s stats say it is, go right to the end, where he spells out the investment implications:

"1) Treasury bonds are obviously not to be favored because of their negative (unreal) real yields. 2) U.S. TIPS [Treasury Inflation-Protected Securities], while affording headline CPI protection, risk the delusion of an artificially low inflation number as well. 3) On the other hand, commodity-based assets as well as foreign equities whose price-to-earnings ratios are better grounded with local CPI and nominal bond yield comparisons should be excellent candidates. 4) These assets should in turn be denominated in currencies that demonstrate authentic real growth and inflation rates, that while high, at least are credible. 5) Developing, BRIC-like economies [Brazil, Russia, India, China] are obvious choices for investment dollars."

Read the full commentary here.

Photo: Bill Gross of Pimco. Andrew Harrer/Bloomberg News