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10 Dec 2014
Inflation expectations tumbling – Investec
FXStreet (Barcelona) - The Investec Team note that inflation expectations are tumbling amid falling oil prices and the uncertainty involving the economies of China, Europe and Japan.
Key Quotes
“An inflation gauge closely watched by Federal Reserve officials has fallen to the lowest level since the financial crisis perhaps causing a potential speed bump for investors betting on a Fed rate increase as soon as mid-2015. The 'five-year forward five-year inflation breakeven rate', as it is known, went below 2.02% yesterday which is the lowest level since the end of 2008. The gauge measures what the average inflation rate will be during a five-year period starting five years from now, in this case between 2019 and 2024.”
“Inflation expectations are tumbling amid uncertainty over the economic outlook in China, Europe and Japan as well as falling energy prices led by the recent oil slide.”
“Investors generally prefer lower inflation because it helps preserve the value of their assets and lower energy prices put money in the pockets of the consumer to spend. However, officials around the globe are wary of deflation, a damaging cycle of falling prices and reduced spending that can harm economic growth and is difficult to exit as Japan can attest to.”
“It is unlikely the Fed will be drawn into deflation worries but certainly without inflationary pressures the Fed may cool on the idea of earlier or faster rate rises and favour a more stimulative policy outlook.”
Key Quotes
“An inflation gauge closely watched by Federal Reserve officials has fallen to the lowest level since the financial crisis perhaps causing a potential speed bump for investors betting on a Fed rate increase as soon as mid-2015. The 'five-year forward five-year inflation breakeven rate', as it is known, went below 2.02% yesterday which is the lowest level since the end of 2008. The gauge measures what the average inflation rate will be during a five-year period starting five years from now, in this case between 2019 and 2024.”
“Inflation expectations are tumbling amid uncertainty over the economic outlook in China, Europe and Japan as well as falling energy prices led by the recent oil slide.”
“Investors generally prefer lower inflation because it helps preserve the value of their assets and lower energy prices put money in the pockets of the consumer to spend. However, officials around the globe are wary of deflation, a damaging cycle of falling prices and reduced spending that can harm economic growth and is difficult to exit as Japan can attest to.”
“It is unlikely the Fed will be drawn into deflation worries but certainly without inflationary pressures the Fed may cool on the idea of earlier or faster rate rises and favour a more stimulative policy outlook.”