"There are two realities out there. When economists and market participants look at [the CPI data] they call it 'transitory.' When Main Street looks at this it says, 'This is not transitory, guys, this is hurting me,'" El-Erian said.

Calling the situation "transitory" makes the market "complacent," he said. "We have to ask the question, what are the consequences? There are real-life consequences that everybody out there knows about and somehow we as a society have to navigate through it."

He said investors have to step back every so often and look three to five years down the road at the economy and what its effect will be on markets around the world.

He spoke the day the Labor Department released figuresshowing the Consumer Price Index was up 0.4 percent after rising 0.5 percent in March. Excluding food and energy it gained 0.2 percent after rising 0.1 percent in March, in line with economists' expectations.

After 30 years of watching government policymakers the Pimco executive said he is nervous about efforts to tackle what he called "bad inflation," or the rising cost of commodities, at the expense of "good inflation," or rising stock prices.