Low expectations of an inflationary world

One of the more interesting phenomena of our ‘inflationary world’ is the fact that market-priced inflation expectations remain relatively well anchored. This has been leveraged by both the bulls (inflation is transitory) and the bears (inflation is going to result in a big policy mistake). But inflation expectations are not predictive, they just provide a cost for hedging risk. The other peculiarity is that globally interest rate markets remain highly correlated and this goes for bond and inflation-linked debt. Yet inflationary pressures are far more embedded in the US than the Eurozone.

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