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Speaker 1: the euro a dollar twelve seventy nine the end one
Speaker 1: eleven point five three. That's a Bloomberg business flash. Tom
Speaker 1: and Mike Caarra Moscow, thank you very much. What we've
Speaker 1: been talking about all day long, the state of inflation
Speaker 1: in the United States, the fact that we're seeing some
Speaker 1: stirring of inflation in the core rate at least of
Speaker 1: CPI will wit and see what the PC shows US.
Speaker 1: One area it is also showing up is in inflation
Speaker 1: expectations on Wall Street Break events have really soared in
Speaker 1: the last couple of weeks, which in theory should make
Speaker 1: Martin Haggard's job easier. He's managing director co ahead of
Speaker 1: Black Rocks inflation linked bond portfolio Martinet. It seems like
Speaker 1: maybe people are beginning to pay attention to your sector
Speaker 1: once again, you know, and we think it's about time. UM.
Speaker 1: You mentioned that inflation expectations have soared recently, and what
Speaker 1: is really interesting is to look at how they have
Speaker 1: actually moved. Where you've had spot inflation expectations move up.
Speaker 1: UM as a result of a stabilization slash move higher
Speaker 1: in commodity prices. But what has not really moved significantly
Speaker 1: is the inflation forwards, which is something that the FED
Speaker 1: continually refers to, and I do think that that was
Speaker 1: some of the impetus behind their perceived debbishness at this
Speaker 1: week's meeting that given that spot inflation expectations have moved,
Speaker 1: but many or at least market participants are not extrapolating
Speaker 1: this to be a permanent move higher in inflation in
Speaker 1: the future. What's the likelihood that inflation picks up to
Speaker 1: the point where people start to care? Well, I think
Speaker 1: we're we're actually there. Um, you know, core inflation printing
Speaker 1: at two point three p r on ear and headline
Speaker 1: inflation going to move up to that fairly rapidly given
Speaker 1: the stabilization or move higher in commodity prices that are
Speaker 1: alluded to earlier. So it is there, and I don't
Speaker 1: think we're going to necessarily deviate too much from the
Speaker 1: current trajector. We may have a little bit of a
Speaker 1: slowdown as we approached the middle of the year, but
Speaker 1: you're in expectations, you know. I spoke to you guys
Speaker 1: a month ago post lost lost CPI print where we
Speaker 1: expected corep I too end the year a little north
Speaker 1: of two. And and if anything, the recent run rate
Speaker 1: and the subsequent depreciation the dollars that we have seen
Speaker 1: pushes our urine forecast a tad higher than we were previously.
Speaker 1: I must admit when I look at course cp I,
Speaker 1: and I compare it to the one I love Martin Haggerty,
Speaker 1: which is Cleveland CPI, which is a national statistic. It's
Speaker 1: jaw dropping at two point three in the acceleration there.
Speaker 1: What is the makeup of our two point three core inflation?
Speaker 1: Well that that's a good question, Tom. And you know
Speaker 1: when we spoke last time, I mentioned how we like
Speaker 1: to split up the CPI indices into high volatility and
Speaker 1: low volatility components. And the low val components are the
Speaker 1: ones that tend to uh in the direction at which
Speaker 1: they move is a direction which overall CPI moves, and
Speaker 1: those are the big service based components of the index,
Speaker 1: such as shelter healthcare um, pushing inflation higher. That our
Speaker 1: low val component is running at almost three on a
Speaker 1: euar of a year basis so well above or at
Speaker 1: least a great contributor to that two point three rate um.
Speaker 1: The high val components, which tend to be obviously more
Speaker 1: volatile in nature as the title would suggest, have also
Speaker 1: moved up, now approaching half a percent year on your in.
Speaker 1: The big contributor to that over the last couple of
Speaker 1: months has been the apparel component, which obviously as a
Speaker 1: testament to greater disposal income that consumers have given how
Speaker 1: low headline inflation has been as a result of gas prices,
Speaker 1: and potentially the headwinds to that sector from a stronger
Speaker 1: dollar that we endue it from two thousand and fourteen
Speaker 1: into two thousand and fifteen and even the beginning of
Speaker 1: two thousand and sixteen are beginning to recede in the data.
Speaker 1: And I was actually looking at the movement in the
Speaker 1: trade weight to dollar and March two thousand and fifteen
Speaker 1: to March two thousand and sixteen, the trade weight to
Speaker 1: dollars basically now unchanged given the depreciation over the last
Speaker 1: over the last month, and more more rapidly over the
Speaker 1: last couple of days. And so the headwinds to inflation
Speaker 1: from the stronger dollar are definitely going to recede into
Speaker 1: the revue mirror as we as we progressed through the year.
Speaker 1: How much of an inflation premium is being built in
Speaker 1: right now? You know, in the inflation market, we don't
Speaker 1: think much. I was just five year five year inflations
Speaker 1: operates trade very close to two percent. The FEDS favored
Speaker 1: five year five year measure trades that one and a half. Now,
Speaker 1: if we are indeed supposed to take the FED word
Speaker 1: at there in flation target of PC inflation of two percent,
Speaker 1: that should really translate into a CPI equivalent of about
Speaker 1: two point three or two point four given the basis
Speaker 1: between those two indictries, and right now at one fifty
Speaker 1: as the tips market is pricing in on this forward metric,
Speaker 1: we're pricing in a negative risk premium of about ninety
Speaker 1: basis points. Now, there is ample room for for the
Speaker 1: forward inflation measure to move up, But it's reasonably interesting
Speaker 1: to to look at where nominal bond yields are currently
Speaker 1: trading relative to the run rate of inflation. So we
Speaker 1: had core inflation print at two point three percent, yet
Speaker 1: tenure nominal bonds are trading basis points below that um,
Speaker 1: which is I think the the signals being sent from
Speaker 1: from the nominal bond market are actually somewhat contrajectory relative
Speaker 1: to the run rate of inflation that we're currently experiencing
Speaker 1: is with us from black Rock. Yeah, it just I folks,
Speaker 1: I can tell you that maybe this week, Mike, there
Speaker 1: wasn't momentous news, but it was one of the most
Speaker 1: interesting weeks here to get to market economics, academic economics,
Speaker 1: and international relations. Just somedimes, just fascinating. Yeah, it's uh,
Speaker 1: as you say, not huge headline because it was more
Speaker 1: about what didn't happen, but in the fact that it
Speaker 1: has made a lot of changes. We're gonna do that
Speaker 1: in our next half hour Bloomberg Surveillance on a Friday, Uh,
Speaker 1: and we're gonna touch on one of the third rail debates.
Speaker 1: If you want to stop a cocktail party in America,
Speaker 1: we know how to do it, and we'll do that
Speaker 1: in our next half hour. It's Bloomberg Surveillance. The Bloomberg
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