What inflation?

James Montier is an economist and global strategist, and very smart. In a recent newsletter on inflation and deflation he looked at TIPS, Treasury Inflation Protected Securities. The 10 year TIP currently yields about 2.1% compared to a 10 year nominal bond yield of 3%.

He notes that this suggests investors are anticipating that the U.S. inflation rate will be only 1% a year for the next decade. He's skeptical. But what if the market is right?

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My suspicion is that disinflation-to-deflation is the normal condition in the evolving global economy. Plus, central banks know how to tame inflation. They have the tools and the knowledge. (The same can't be said about managing bubbles and the nasty aftermath.) Of course, investors can be wrong--really wrong. But I find it intriguing that investors aren't that concerned that the Fed is printing money.