Inflation
Inflation - Still Going Nowhere
Inflation measures are anemic and mostly lower than expectations. We maintain our view that inflation will be a non-factor for the next six months but will increase moderately in the following six months. Inflation on the producers’ level to be modest too. We don’t see strong evidence for a big rise in the near term.
10-Year: Taper the Taper—Upside Limited
If interest rates keep going higher from here, we would run the risk of derailing a still-fragile recovery. As long as the Fed tapering uncertainty exists, we expect higher volatility on the 10-year yield to persist in the mean time.
10-Year: 185-245 Range Broken & Higher Volatility
We think 3% is the upper bound in the short term. However, we believe it will settle back closer to 250 bps by the end of the year.
Inflation Slides Again
April inflation numbers were generally lower than expected. We are shifting out our inflation outlook by six months. We believe inflation will be a non-factor for the next six months but will increase moderately in the following six months.
"Muddle Through"
The global economy is stuck in a “muddle through” mode with developed and emerging countries showing divergence in terms of leading indicators. Despite this divergence, they share one thing in common: an upturn in inflation. How much more room there is for easing is a key determinant of asset market performance.
Implications Of The End Of Negative Real Yield
The 10-year real yield turned positive at the end of 2012 and has stayed there. We expect higher interest rates, a stronger dollar, and lower gold prices in the next twelve months.
Inflation Slightly Lower Than Expected
The non-seasonally adjusted CPI fell 0.5% from October to November, lower than expected.
No Big Change — Inflation Remains Moderate
The non-seasonally adjusted CPI was essentially flat in October, in line with market expectations.
MTI Slips To Neutral… Now What?
While we don’t know which direction it will head next, we break down a few of the MTI categories and present some of our observations.
Inflation Turned Higher In August
The non-seasonally adjusted CPI jumped 0.6% in August, matching the market consensus.
CPI Inflation Dips Lower, But Concerns About Food & Energy Prices Remain
Inflation measures mostly lower than expected in July.
Lowered Expectations — Policy Effectiveness
For central bank policy effectiveness, global economic growth, interest rates, and inflation. While lowered expectations are a good thing in the near term, long term return expectations for most asset classes should be lowered too.
Near Term Inflation Presures Receding
Most inflation measures matched expectations in April.
Inflation Still Below Fed’s Target, Near Term Pressure Is Moderate
Inflation is still below the Fed’s target and near term pressure is only moderate. This gives the Fed some room to ease further if the economy falters.
Evidence of Near Term Commodity Inflation Building
A month and a half ago we became concerned with rising commodity prices, which has been especially obvious over one and three month time horizons. Those trends continued in March, with several of the commodity indices now showing double digit price increases from three months ago.
Falling Commodity Prices Tamping Down Inflation Pressures
Through November, the CPI is now up 3.4% from year ago levels, while the PPI is up 5.7%.
Inflation Pressures Waning
While our 2011 year end inflation projections are still well above the 2010 year end levels, it seems that both the CPI and PPI may have already peaked for the year.
Near Term Measures Pointing Toward Lessening Of Inflation Pressures
Twelve month rates of change will not rise much from current levels through the rest of 2011.
Six Month Readings Look More Favorable Than Twelve Month Readings
In all of the primary inflation measures monitored in our Inflation Watch publication, the six month rates of change moved lower in July. For the most part, the twelve month readings have continued to rise. This action is likely pointing to diminishing inflation pressures for the months ahead.
Jumped The Gun With Boost To PPI Estimate
The July reports showed that both PPI and CPI edged downward in June from May readings.
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