• 511 days Will The ECB Continue To Hike Rates?
  • 512 days Forbes: Aramco Remains Largest Company In The Middle East
  • 513 days Caltech Scientists Succesfully Beam Back Solar Power From Space
  • 913 days Could Crypto Overtake Traditional Investment?
  • 918 days Americans Still Quitting Jobs At Record Pace
  • 920 days FinTech Startups Tapping VC Money for ‘Immigrant Banking’
  • 923 days Is The Dollar Too Strong?
  • 923 days Big Tech Disappoints Investors on Earnings Calls
  • 924 days Fear And Celebration On Twitter as Musk Takes The Reins
  • 926 days China Is Quietly Trying To Distance Itself From Russia
  • 926 days Tech and Internet Giants’ Earnings In Focus After Netflix’s Stinker
  • 930 days Crypto Investors Won Big In 2021
  • 930 days The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030
  • 931 days Food Prices Are Skyrocketing As Putin’s War Persists
  • 933 days Pentagon Resignations Illustrate Our ‘Commercial’ Defense Dilemma
  • 934 days US Banks Shrug off Nearly $15 Billion In Russian Write-Offs
  • 937 days Cannabis Stocks in Holding Pattern Despite Positive Momentum
  • 938 days Is Musk A Bastion Of Free Speech Or Will His Absolutist Stance Backfire?
  • 938 days Two ETFs That Could Hedge Against Extreme Market Volatility
  • 940 days Are NFTs About To Take Over Gaming?
What's Behind The Global EV Sales Slowdown?

What's Behind The Global EV Sales Slowdown?

An economic slowdown in many…

How The Ultra-Wealthy Are Using Art To Dodge Taxes

How The Ultra-Wealthy Are Using Art To Dodge Taxes

More freeports open around the…

  1. Home
  2. Markets
  3. Other

Awareness of Inflation, But No Fear Yet

Suddenly, there is a bunch of talk about inflation. From analysts like Grant Williams to media outlets like MarketWatch and the Wall Street Journal (to be sure, the financial media still tell us not to worry about inflation and keep on buying 'dem stocks, such as Barron's argues here), and even Wall Street economists like those from Soc Gen and Deutsche Bank...just two name two of many Johnny-come-latelys.

It is a little surprising how rapidly the articles about possibly higher inflation started showing up in the media after we had a bottoming in the core measures. Sure, it was easy to project the bottoming in those core measures if you were paying attention to the base effects and noticing that the measures of central tendency that are more immune to those base effects never decelerated much (see median CPI), but still somehow a lot of people were taken by surprise if the uptick in media stories is any indication.

I actually have an offbeat read of that phenomenon, though. I think that many of these analysts, media outlets, and economists just want to have some record of being on the inflation story at a time they consider early. Interestingly enough, while there is no doubt that the volume of inflation coverage is up in the days since the CPI report, there is still no general alarm. The chart below from Google Trends shows the relative trend in the search term "rising inflation." It has shown absolutely nothing since the early days of extraordinary central bank intervention.

Chart of Interest over time
Larger Image

Now, I don't really care very much when the fear of inflation broadens. It is the phenomenon of inflation, not the fear of it, which causes the most damage to society. However, there is no doubt that the fear of inflation definitely could cause damage to markets much sooner than inflation itself can. The concern has been rising in narrow pockets of the markets where inflation itself is actually traded, but because we trade headline inflation the information has been obscured. The chart below (source: Enduring Investments) shows the 1-year headline inflation swap, in black, which has risen from about 1.4% to 2.2% since November. But the green line shows the implied core inflation extracted from those swap quotes, and that line has risen from 1.2% in December to 2.6% or so now. That is far more significant - 2.6% core inflation over the next year would mean core PCE would exceed 2% by next spring. This is a very reasonable expectation, but as I said it is still only a narrow part of the market that is willing to bet that way.

One Year Inflation Swap vs Implied core from Swaps + Energy
Larger Image

If I was long equities - which I am not, as our four-asset-class model currently has only a 7.4% weight in stocks - then I would keep an eye on the search terms and for other anecdotal evidence that inflation fears are starting to actually rise among investors, rather than just being the probably-cynical musings of people who don't want to be seen as having missed the signs (even if they don't really believe it).

 

Back to homepage

Leave a comment

Leave a comment