The inflation index for all items less food and energy has risen 2.1 percent over the last 12 months (as of July reading.. August report due tomorrow), a slight decrease from the 2.2 percent figure of June. The shelter index has also risen 2.1 percent over the last year. The medical care index has increased 4.1 percent over the last 12 months, the largest change since May 2008.

At the same time the yield on 10 Year U.S. Treasury notes stand at 1.75%, which is 40 basis points under inflation.

In our mind, something will eventually give. The bond market is pricing in continued deflation… what do you think?

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