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Pimco's Gross Says Rampant Inflation Here to Stay

Thursday, 29 May 2008 | 2:16 PM ET

Soaring inflation will continue to cause policy dilemmas for the Federal Reserve and other central banks as the global demand for commodities remains strong, Bill Gross, chief investment officer at PIMCO, told CNBC Thursday.

Bill Gross on Inflation
"I think inflation is here to stay for at least the next year or two," Bill Gross, chief investment officer of PIMCO, told CNBC Thursday.

"I think inflation is here to stay for at least the next year or two," Gross told "Europe Tonight." He added, "there's real demand for commodities … that ultimately will continue to impact core (inflation)."

The Fed has slashed its base rate to 2 percent since the onset of the subprime and credit crises in the hope of kick-starting the slowing U.S. economy, while running the risk of fuelling price rises.

Consumer prices, minus food and energy costs, were expected by Fed policy makers in April to rise by 2.2 percent to 2.4 percent this year. That’s an increase from previous estimates of between 2 percent to 2.2 percent predicted in January. However, Gross thinks those expectations should be increased to 3 percent to 4 percent.

Economists and some central bankers have neglected the effect of commodity inflation and focused too much on wage inflation, according to Gross.

Investors keen to avoid the pitfalls of rampant inflation should opt for "real assets that can reprice subject to supply and demand considerations on a global basis," Gross said.

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