Dec 9, 2022
Traders and Consumers Lower Their Expectations for US Inflation
Bloomberg News
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(Bloomberg) -- Bond traders and US consumers alike are getting more comfortable with the idea that inflationary pressures have peaked in the world’s top economy, allowing the Federal Reserve to adopt a more cautious approach.
So-called breakeven rates on inflation-linked debt and derivatives — measures of what traders anticipate consumer prices will do over the coming decade — have slipped from a week ago. That’s just as preliminary data from the University of Michigan showed consumers’ short-term inflation expectations unexpectedly ebbed to the lowest level in more than a year.
All that sets the scene for the November consumer price index on Tuesday, which is expected to show a 7.3% year-on-year increase, down slightly from a month earlier. A day later, the Fed is forecast to deliver a half-point hike, capping a streak of four straight three-quarter-point moves.
Bond traders expect the monetary authority’s overnight rate to plateau at about 5% by mid-2023 as the central bank takes time to assess the impact of its policy changes. Odds of a modest US recession and waning price pressure in the coming year has fueled a rally in Treasuries over the past month, led by longer-dated securities.
The following is a series of indicators on how the market views US inflation.
Inflation Snapshot
Inflation News Bites
- Brazil’s consumer prices rose less than forecast on temporary, Black Friday shopping discounts as the central bank warns that greater public spending could pressure inflation going forward.
- The Bank of England said the expectations that British consumers have about where inflation is headed drifted further above its 2% target, and more people were dissatisfied with the way the central bank is doing its job.
- China’s factory-gate prices contracted again in November while consumer inflation eased as Covid disruptions suppressed demand, giving the central bank some room to ease policy as the economy tries to recover.
- Soaring tuna prices are among the items driving Japan’s fastest inflation in four decades and a fall in purchasing power that are together testing the limits of the country’s outlier policy mix.
- With inflation rising at the highest rate since 1996, the forint sliding and teachers staging another national walkout, it’s been a tough week for Hungarian Prime Minister Viktor Orban.
Key Upcoming US Releases
- Dec. 13: Consumer Price Index for November
- Dec. 14: Import and Export Price Indexes for November
- Dec. 14: Federal Open Market Committee policy decision
- Dec. 22: GDP report, including PCE deflators, for third quarter (third reading)
- Dec. 23: Personal income and spending report, including personal consumption expenditure gauges, for November; University of Michigan inflation expectations gauges for December (final)
- Jan. 6: Monthly jobs report, including average wages data, for December
- Jan. 18: Producer Price Index for December
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