CPI came out today above expectations and there was no real reaction. Inflation is now at the highest levels in 17 years and the bond market rallied. The dollar was in a tight range and equities increased. Some announcement. Core inflation is still half of the headline number. Oil and food prices have seen strong declines so maybe everyone is just looking through the July number; nevertheless, the current misery index of inflation and unemployment is only moving higher.
Japan was also hit with the highest inflation in decades with their domestic corporate goods index. While the index has seem some spikes, the current run-up is part of a sustained trend. We looked at the series back to 1980 and could not find a similar sustained spike. This is truly a surprise given the deflation decade of the 1990's.
The real surprise is the lack of further follow-through on fixed income. Break-even inflation rates in the US are still at 2%. In Japan, the break-even yields on 2018 maturities is at .182. Still is still complacent.
Japan was also hit with the highest inflation in decades with their domestic corporate goods index. While the index has seem some spikes, the current run-up is part of a sustained trend. We looked at the series back to 1980 and could not find a similar sustained spike. This is truly a surprise given the deflation decade of the 1990's.
The real surprise is the lack of further follow-through on fixed income. Break-even inflation rates in the US are still at 2%. In Japan, the break-even yields on 2018 maturities is at .182. Still is still complacent.
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