Summer Of ‘82 Inflation Makes For Winter Of Discontent
By Ven Ram, Bloomberg Markets Live commentator and analyst
It feels like today’s inflation number out of the U.S. is all we have been waiting for all of this week. Of course, we had a bunch of three-letter abbreviations — the RBA, RBI and the BOC — earlier, but those seemed like par for the course.
While the median forecast for November is for a print of 6.8% YoY, any number that is around that ballpark is likely to be the most feverish reading since probably the summer of 1982. Unless the die lands two standard deviations away from there, the numbers would mean little for the markets beyond the immediate reaction.
We already know that sellers are struggling to get their goods and services across the last mile to the consumer, that inflation is elevated, and all those are already in the price tag of the markets — so one more print of the same thing is unlikely to inform us that much more. While consumers may legitimately feel like they are sitting on a hot tin roof — despite it being a blustery winter’s day, at least in the U.K. — what matters for the Fed will be expectations of inflation.
And there the numbers aren’t exactly screaming murder. Back in January, MLIV posited that the upside in long-dated breakevens was limited and that the 10-year rate may struggle to push past 2.50% — incidentally, that’s exactly the level where we are now. Another key gauge, 5y5y inflation swaps are also bobbing around there, levels that would be consistent with the Fed’s average inflation-targeting approach.
Of course, if we get a number upward of 7% today, that would make for great headlines on the terminal, miserable optics in Washington and interesting conversations around the Fed’s round table next week. I don’t know about you, but I would rather save any adrenaline rush for their review. That, of course, may bring about a winter of discontent for the markets depending on how the Fed surveys the lay of the land, but let’s hold off on that conversation for now.
Fri, 12/10/2021 – 08:26