Tuesday, January 3, 2017

Will Inflation Be the Story of 2017?

From Bloomberg:

While the ISM sub-indexes can be volatile, the jump in prices caught the eye of factory managers and analysts, with survey chairman Bradley Holcomb noting it was “clearly something to watch” at the beginning of the year. A broad-based increase in costs of inputs for production corroborates signs of higher consumer inflation. The personal consumption expenditures price index -- the Federal Reserve’s preferred gauge -- is up 1.4 percent on a year-over-year basis, the fastest gain since 2014.

Even with the increase in the ISM price index, it’s far below levels from times associated with rapid inflation. The gauge averaged a 73.7 reading in 1980, when the consumer-price index averaged a 13.6 percent rise. The ISM price index reached a post-recession high of 85.5 in 2011, coinciding with a post-recession high in crude oil and faster gains in the Fed’s preferred index.

From the Financial Times

Germany’s annual inflation rate has surged to its highest level in more than three years, defying economist forecasts to hit 1.7 per cent in December in a release that is likely to embolden German critics of stimulative monetary policy in the eurozone.

From Bloomberg:

A barrel of West Texas Intermediate traded above $55 this morning, the highest level for the contract since July 2015. The rise comes after local media in Kuwait reported that the country has cut output by 130,000 barrels a day, a sign that the OPEC deal to reduce production may be implemented successfully. In the U.S., drillers added rigs for the ninth week, boosting the number to the highest in about a year. 

From Wednesday's Eurostate Release: note energy prices

Chart of the 5 and 10-year Breakeven Inflation Rates

1- year Chart of10 and 30-year CMTs