Saxo Inflation Monitor Saxo Inflation Monitor Saxo Inflation Monitor

Saxo Inflation Monitor

Christopher Dembik

Head of Macroeconomic Research

Summary:  Saxo Inflation Monitor is a new publication that tracks various forms of inflation and price trends in order to forecast the evolution of inflation and the potential market impact.

We intuitively believe that the rise in protectionism is fueling higher inflation. While there is evidence of price spikes on products targeted by higher tariffs (such as the price of washing machine imports in the United States), aggregate inflation remains low in most developed countries and even falls in many Asian countries.

The latest Chinese figures tend to indicate that China is starting to export lowflation globally again. Chinese CPI for non-agricultural products is up only 1% YoY while the PPI is collapsing to minus 1.2% YoY from minus 0.8%. The outlook is not as bad as in 2015, when China has massively exported deflation to trade partners, but should economic situation continue to deteriorate, the risk of outright deflation would increase significantly.

In the United States, the main measures of inflation confirm that it is close to target. Based on an annual percentage rate, CPI is standing at 1.7% YoY in September, PCE is at 1.6% YoY in August and PCE excluding food and energy is at 2.4% YoY the same month. Inflation is notably supported by a healthy job market and still improving wage growth.

However, these drivers may play a less important role in the coming months. In the chart below, we have plotted small businesses' plans to increase compensation, and the evolution of the employment cost index, which details the changes in the costs of labor. We find out a strong correlation of 0.8 between both series and that NFIB compensation plans lead by three quarters.

Based on the latest update, the net share of small companies planning to raise compensation in the next three months is moving downward, at 18% in September (down 7 points from the peak of this cycle reached in November 2018). It tends to suggest that inflationary pressures are slowly fading on Main Street and it could ultimately result in lower employment cost going into 2020.

The divergence between realized inflation and expected inflation has increased a lot over the past few months. The University of Michigan survey, the 5-year break-even inflation rate (chart below) and the Cleveland Fed survey all confirm an increased risk of de-anchoring of inflation expectations. The 5-year break-even inflation rate is close to its 2015-2016 low points when inflation was moving down due to the Chinese deflation. This divergence is intriguing because inflation expectations should normally be higher given the current headline inflation and commodity trends.

The evolution of the Fed’s “underlying inflation gauge” confirms that inflation expectations are going in the right direction and that inflation is doomed to fall in 2020. In the chart below, we show the relationship between core CPI and the new underlying inflation tracker of the NY Fed that integrates both macroeconomic data and financial variables (if you wish, you can access the full data set HERE). Not only does the “underlying inflation gauge” demonstrate high correlation of 0.7 with core CPI, but it also leads the former by a little over a year. This correlation suggests that inflation may be about to deceleration, which could be good news for the FED as it would leave more room to lower rates further to stimulate the economy.


Saxo Capital Markets (Australia) Limited 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 Financial Services Guide and Product Disclosure Statement. All legal documentation and disclaimers can be found at

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.

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments.Saxo Capital Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Capital Markets or its affiliates.

Please read our disclaimers:
- Full Disclaimer (
- Analysis Disclaimer (
- Notification on Non-Independent Investment Research (

Saxo Capital Markets (Australia) Limited
Suite 1, Level 14, 9 Castlereagh St
Sydney NSW 2000

Contact Saxo

Select region


The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit

Saxo Capital Markets (Australia) Limited 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, Product Disclosure Statement and Target Market Determination 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. 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. The Target Market Determination should assist you in determining whether any of the products or services we offer are likely to be consistent with your objectives, financial situation and needs.

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.