Is there a bubble in inflation expectations? In his latest research piece David Rosenberg posts an interesting tidbit – should we view John Q Public’s inflation expectations as a contrarian sign? Mr. Rosenberg says:
“The chart below depicts…12 month inflation expectation by John and Jane Q Public. Their forecasting record is a riot – it’s even worse than most economists. But each time in the past that the Conference Board’s inflation expectation index either approached or crossed above the 6% mark, inflation actually fell in the ensuing year each time, and by an average of more than three-percentage points. So when did this metric rise above 6% this time around? Try March. And what was headline inflation at the time? Call it roughly 2.5%. Do the math – think we may be talking about deflati0n again this time in 2012?”
Very interesting. If there was ever something cyclical it is sentiment. Parabolic sentiment charts are never a good sign. If I could short this index I would place a virtual guarantee on my ability to make money in the coming 6 months. Unfortunately, making money isn’t that simple. But the chart certainly makes one wonder if there isn’t a bubble in inflation expectations due in large part to QE2 and seasonal trends in commodities?
Source: Gluskin Sheff
Read Some Related Articles
Chart of the day - Silly Charts Edition
No, T-bonds bonds don't remotely resemble the Nasdaq bubble.... ...read more
Reminder: Tapering is not Tightening
A strange thing has happened ever since the "tapering" began last December - interest rates have fallen, stocks have risen and inflation expectations have actually increased. This is almost exactly ...read more
Why and How the ECB Might Implement QE
Important chart here from Michael McDonough at Bloomberg. It shows the spread between Italian sovereign bond yields and corporate bond yields. As you can see, as the ...read more
Chart of the Day: Is the Expansion "Long in the Tooth"?
While we're probably closer to the next recession than we are to the beginning of the recovery, it's also important to remember that the business cycle seems to be getting ...read more