WEBVTT - Hegarty: inflation is heading higher

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<v Speaker 1>Global business news twenty four hours a day. If Bloomberg

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<v Speaker 1>this is a Bloomberg Business Flash And I'm Karen Moscow

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<v Speaker 1>dot com, Slash, CME Group and U Stock Index futures

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<v Speaker 1>are higher, with equities on track to extend their longest

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<v Speaker 1>weekly winning streaks ince November, as gains and crewed oils

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<v Speaker 1>signal further advances in commodity shares. We check the markets

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<v Speaker 1>every fifteen minutes throughout the trading day on Bloomberg SNP

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<v Speaker 1>EVENI futures up three points, Dow E Mini futures up

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<v Speaker 1>thirty two NASDAC EVENI futures of three. The acts in

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<v Speaker 1>Germany is little changed ten. Your treasury up three thirty seconds,

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<v Speaker 1>the yield one point eight percent. NIMEX screwed oil up

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<v Speaker 1>one point four percent, or fifty six cents to forty

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<v Speaker 1>dollar seventy six cents of barrel comex goal down nine

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<v Speaker 1>tenths per cent or eleven dollars seven sense to twelvefounts

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<v Speaker 1>the euro a dollar twelve seventy nine the end one

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<v Speaker 1>eleven point five three. That's a Bloomberg business flash. Tom

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<v Speaker 1>and Mike Caarra Moscow, thank you very much. What we've

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<v Speaker 1>been talking about all day long, the state of inflation

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<v Speaker 1>in the United States, the fact that we're seeing some

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<v Speaker 1>stirring of inflation in the core rate at least of

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<v Speaker 1>CPI will wit and see what the PC shows US.

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<v Speaker 1>One area it is also showing up is in inflation

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<v Speaker 1>expectations on Wall Street Break events have really soared in

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<v Speaker 1>the last couple of weeks, which in theory should make

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<v Speaker 1>Martin Haggard's job easier. He's managing director co ahead of

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<v Speaker 1>Black Rocks inflation linked bond portfolio Martinet. It seems like

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<v Speaker 1>maybe people are beginning to pay attention to your sector

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<v Speaker 1>once again, you know, and we think it's about time. UM.

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<v Speaker 1>You mentioned that inflation expectations have soared recently, and what

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<v Speaker 1>is really interesting is to look at how they have

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<v Speaker 1>actually moved. Where you've had spot inflation expectations move up.

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<v Speaker 1>UM as a result of a stabilization slash move higher

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<v Speaker 1>in commodity prices. But what has not really moved significantly

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<v Speaker 1>is the inflation forwards, which is something that the FED

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<v Speaker 1>continually refers to, and I do think that that was

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<v Speaker 1>some of the impetus behind their perceived debbishness at this

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<v Speaker 1>week's meeting that given that spot inflation expectations have moved,

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<v Speaker 1>but many or at least market participants are not extrapolating

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<v Speaker 1>this to be a permanent move higher in inflation in

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<v Speaker 1>the future. What's the likelihood that inflation picks up to

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<v Speaker 1>the point where people start to care? Well, I think

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<v Speaker 1>we're we're actually there. Um, you know, core inflation printing

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<v Speaker 1>at two point three p r on ear and headline

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<v Speaker 1>inflation going to move up to that fairly rapidly given

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<v Speaker 1>the stabilization or move higher in commodity prices that are

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<v Speaker 1>alluded to earlier. So it is there, and I don't

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<v Speaker 1>think we're going to necessarily deviate too much from the

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<v Speaker 1>current trajector. We may have a little bit of a

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<v Speaker 1>slowdown as we approached the middle of the year, but

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<v Speaker 1>you're in expectations, you know. I spoke to you guys

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<v Speaker 1>a month ago post lost lost CPI print where we

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<v Speaker 1>expected corep I too end the year a little north

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<v Speaker 1>of two. And and if anything, the recent run rate

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<v Speaker 1>and the subsequent depreciation the dollars that we have seen

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<v Speaker 1>pushes our urine forecast a tad higher than we were previously.

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<v Speaker 1>I must admit when I look at course cp I,

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<v Speaker 1>and I compare it to the one I love Martin Haggerty,

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<v Speaker 1>which is Cleveland CPI, which is a national statistic. It's

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<v Speaker 1>jaw dropping at two point three in the acceleration there.

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<v Speaker 1>What is the makeup of our two point three core inflation?

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<v Speaker 1>Well that that's a good question, Tom. And you know

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<v Speaker 1>when we spoke last time, I mentioned how we like

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<v Speaker 1>to split up the CPI indices into high volatility and

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<v Speaker 1>low volatility components. And the low val components are the

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<v Speaker 1>ones that tend to uh in the direction at which

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<v Speaker 1>they move is a direction which overall CPI moves, and

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<v Speaker 1>those are the big service based components of the index,

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<v Speaker 1>such as shelter healthcare um, pushing inflation higher. That our

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<v Speaker 1>low val component is running at almost three on a

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<v Speaker 1>euar of a year basis so well above or at

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<v Speaker 1>least a great contributor to that two point three rate um.

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<v Speaker 1>The high val components, which tend to be obviously more

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<v Speaker 1>volatile in nature as the title would suggest, have also

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<v Speaker 1>moved up, now approaching half a percent year on your in.

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<v Speaker 1>The big contributor to that over the last couple of

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<v Speaker 1>months has been the apparel component, which obviously as a

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<v Speaker 1>testament to greater disposal income that consumers have given how

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<v Speaker 1>low headline inflation has been as a result of gas prices,

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<v Speaker 1>and potentially the headwinds to that sector from a stronger

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<v Speaker 1>dollar that we endue it from two thousand and fourteen

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<v Speaker 1>into two thousand and fifteen and even the beginning of

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<v Speaker 1>two thousand and sixteen are beginning to recede in the data.

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<v Speaker 1>And I was actually looking at the movement in the

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<v Speaker 1>trade weight to dollar and March two thousand and fifteen

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<v Speaker 1>to March two thousand and sixteen, the trade weight to

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<v Speaker 1>dollars basically now unchanged given the depreciation over the last

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<v Speaker 1>over the last month, and more more rapidly over the

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<v Speaker 1>last couple of days. And so the headwinds to inflation

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<v Speaker 1>from the stronger dollar are definitely going to recede into

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<v Speaker 1>the revue mirror as we as we progressed through the year.

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<v Speaker 1>How much of an inflation premium is being built in

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<v Speaker 1>right now? You know, in the inflation market, we don't

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<v Speaker 1>think much. I was just five year five year inflations

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<v Speaker 1>operates trade very close to two percent. The FEDS favored

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<v Speaker 1>five year five year measure trades that one and a half. Now,

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<v Speaker 1>if we are indeed supposed to take the FED word

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<v Speaker 1>at there in flation target of PC inflation of two percent,

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<v Speaker 1>that should really translate into a CPI equivalent of about

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<v Speaker 1>two point three or two point four given the basis

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<v Speaker 1>between those two indictries, and right now at one fifty

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<v Speaker 1>as the tips market is pricing in on this forward metric,

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<v Speaker 1>we're pricing in a negative risk premium of about ninety

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<v Speaker 1>basis points. Now, there is ample room for for the

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<v Speaker 1>forward inflation measure to move up, But it's reasonably interesting

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<v Speaker 1>to to look at where nominal bond yields are currently

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<v Speaker 1>trading relative to the run rate of inflation. So we

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<v Speaker 1>had core inflation print at two point three percent, yet

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<v Speaker 1>tenure nominal bonds are trading basis points below that um,

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<v Speaker 1>which is I think the the signals being sent from

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<v Speaker 1>from the nominal bond market are actually somewhat contrajectory relative

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<v Speaker 1>to the run rate of inflation that we're currently experiencing

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<v Speaker 1>is with us from black Rock. Yeah, it just I folks,

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<v Speaker 1>I can tell you that maybe this week, Mike, there

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<v Speaker 1>wasn't momentous news, but it was one of the most

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<v Speaker 1>interesting weeks here to get to market economics, academic economics,

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<v Speaker 1>and international relations. Just somedimes, just fascinating. Yeah, it's uh,

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<v Speaker 1>as you say, not huge headline because it was more

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<v Speaker 1>about what didn't happen, but in the fact that it

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<v Speaker 1>has made a lot of changes. We're gonna do that

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<v Speaker 1>in our next half hour Bloomberg Surveillance on a Friday, Uh,

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<v Speaker 1>and we're gonna touch on one of the third rail debates.

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<v Speaker 1>If you want to stop a cocktail party in America,

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<v Speaker 1>we know how to do it, and we'll do that

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<v Speaker 1>in our next half hour. It's Bloomberg Surveillance. The Bloomberg

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