Chart of the Week : Dissecting the inflation puzzle

Macro

Christopher Dembik

Head of Macro Analysis

Summary:  Our 'Macro Chartmania' series collects Macrobond data and focuses on a single chart chosen for its relevance.


Click here to download this week's full edition of Macro Chartmania.

One of the most intriguing themes in the macro space in COVID-19 times is the evolution of inflation. The unexpected jump in U.S. inflation in August reinforced fears that inflation could derail in the medium- or long-term due to extremely accommodating monetary policies. The August CPI rose by 0.4%, reaching 1,3% while the core CPI, which excludes food and energy costs, increased by 0.4% to 1.7%. What is probably the most significant is that the median CPI calculated by the Cleveland Fed, which is usually considered as a better signal of underlying inflation trend, was also up, with a jump of 0.3%, at 2.7%. Higher inflation has been heavily concentrated in a few categories, especially in sewing machines and supplies (+15% on a monthly basis) while persistent downward pressure from housing and intracity mass transit has remained. However, it would be premature to see in this recent jump the indication that inflation is about to overshoot. What we have learnt over the past months is the pandemic creates a lot of data noise, especially due to habits shift in consumption. This also applies to inflation figures. For the time being, we don’t think that the evolution of underlying inflation can be properly measured and weighted in CPI. We better refer to CPI only as a way to capture what the pandemic has done in terms of changing consumer behavior. This is particularly salient when looking at change in durable consumption versus service consumption. For instance, we ate much more at home and spent less on transportation and eating out in these unusual circumstances while at the same time we have seen food prices jumping quite a lot for some items at the supermarket. Another reason not to worry much about rising inflation, at least for the moment, is that inflation expectations remain well-anchored. Expectations are standing at 1.9% in one year, only 2.1% in 10 years and the widely-watched five year, five year forward is at 1.9% (see below chart). We are not saying that there is no case for inflation overshooting in the long run but, at the present, neither inflation figures nor forward looking market statistics confirm that the inflation trend is about to enter risk-zone territory.

Disclaimer

Saxo Capital Markets (Australia) Pty Ltd prepares and distributes information/research produced within the Saxo Bank Group for informational purposes only. In addition to the disclaimer below, if any general advice is provided, such advice does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of trading any financial instrument as trading can result in losses that exceed your initial investment. Please refer to our Analysis Disclaimer, and our Combined Financial Services Guide and Product Disclosure Statement. All legal documentation and disclaimers can be found at https://www.home.saxo/en-au/legal/.

The Saxo Bank Group entities each provide execution-only service. Access and use of Saxo News & Research and any Saxo Bank Group website are subject to (i) the Terms of Use; (ii) the full Disclaimer; and (iii) the Risk Warning in addition (where relevant) to the terms governing the use of the website of a member of the Saxo Bank Group.

Saxo News & Research is provided for informational purposes, does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. No Saxo Bank Group entity shall be liable for any losses that you may sustain as a result of any investment decision made in reliance on information on Saxo News & Research.

To the extent that any content is construed as investment research, such content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication.

Please read our disclaimers:
- Full Disclaimer (https://www.home.saxo/en-au/legal/disclaimer/saxo-disclaimer)
- Analysis Disclaimer (https://www.home.saxo/en-au/legal/analysis-disclaimer/saxo-analysis-disclaimer)
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-au/about-us/awards

Saxo Capital Markets (Australia) Pty Ltd ABN 32 110 128 286 AFSL 280372 (‘Saxo’ or ‘Saxo Capital Markets’) is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms, Financial Services Guide and Product Disclosure Statement to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products such as CFDs and Margin FX products may result in your losses surpassing your initial deposits. Saxo Capital Markets does not provide ‘personal’ financial product advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Capital Markets does not take into account an individual’s needs, objectives or financial situation.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan.
Please click here to view our full disclaimer.