It's early days but inflation may be back

Amid all the kerfuffle about Beijing's apparent clampdown on speculative excesses in the Chinese stock market, a potentially more dangerous issue for the developed market bull run slipped under many investors' radar at the end of last week.

As Strategas, the New York-based research boutique, proclaimed: "Inflation is back."

It really should be of little concern to developed markets if the froth is knocked off the Shanghai Composite.

But burgeoning price pressures pose a real problem. Strategas again: "In the last tightening cycle, it was inflation that got the Fed to move."

It is core inflation that exercises the central bank, and data released on Friday showed the core US consumer price index rose 0.2 per cent month-on-month, up 1.8 per cent year-on-year, "and has risen 2.3 per cent over the past three months", Strategas notes.

These figures are of course low by normal standards. But these are not normal times. Markets have been pricing assets on an ultra-loose policy, deflationary mindset for many years.

The US five-year break-even rate, a measure of investor inflation expectations, has climbed to 1.70 per cent, its highest in seven months - though, granted, this is partly on the back of a rebound in oil prices of late.

Still, if the core inflation trend persists, the Fed's hand could be forced even while some perceive the economy to be struggling for meaningful traction.

It's early days, but any such concerns have to start somewhere. And stocks won't like it.

[email protected]

© The Financial Times Limited 2015. All rights reserved.
FT and Financial Times are trademarks of the Financial Times Ltd.
Not to be redistributed, copied or modified in any way.
Euro2day.gr is solely responsible for providing this translation and the Financial Times Limited does not accept any liability for the accuracy or quality of the translation