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Inflation Risks Start to Hit Pockets of Global Bond Market

Inflation Risks Start to Hit Pockets of Global Bond Market

(Bloomberg) — Parts of bond markets around the world have started to signal that inflation risks will linger in the longer term, even as few expect prices to jump right away.

Unprecedented stimulus to cushion the global economy from the pandemic and signs that central bank independence is eroding worldwide have kept inflation concerns alive. That’s showing up as one factor in credit markets, where longer-dated bonds that are more sensitive to inflation expectations have lagged in recent months, reversing earlier outperformance.



Tough Days


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Tough Days

In the U.S., investment-grade corporate notes due in more than 10 years underperformed short bonds last month after posting the most losses among all maturities in August, according to Bloomberg Barclays indexes. And in the options market, the cost to hedge against inflation rising over 2% in the next five years has more than doubled since February. In Asia, dollar-denominated company securities with over 10 years to maturity were the worst-performing group for the two months through September.

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Read about study that found signs of eroding central bank independence

That’s even though the sustained economic recovery that was going to usher in a new age of rising prices no longer looks like a sure thing as the pandemic drags on. Some popular trades betting on inflation that had done well over the summer have started to come undone, with growth stocks dropping and gold’s rally faltering. But for credit investors looking further along the horizon, a growing group sees eventual economic recovery gradually rekindling price increases.

“We think the worst of prices declines are over — some of the coronavirus shock-related disruption now has eased as economies start to reopen,” said Sylvia Sheng, global multi-asset strategist at JPMorgan Asset Management, who expects a risk of high inflation in the next three to

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Used vehicles lift U.S. consumer prices, but inflation slowing

Used vehicles lift U.S. consumer prices, but inflation slowing

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. consumer prices increased for a fourth straight month in September, with the cost of cars and trucks rising by the most since 1969, though inflation is slowing amid labor market slack as the economy gradually recovers from the COVID-19 recession.

While the benign report from the Labor Department on Tuesday will have no direct impact on monetary policy, it should allow the Federal Reserve to keep interest rates near zero for a while and continue with massive cash infusions as it nurses the economy back to health.

The U.S. central bank is now more concerned about the labor market and has embraced flexible average inflation targeting, which in theory could see policymakers tolerate price increases above its 2% target for a period of perhaps several years to offset years in which inflation was lodged below its goal.

At least 25.5 million people are on unemployment benefits.

The consumer price index rose 0.2% last month after gaining 0.4% in August. The CPI advanced 0.6% in both June and July after falling in the prior three months as business closures to slow the spread of the coronavirus weighed on demand.

A 6.7% jump in the prices of used cars and trucks accounted for most of the increase in the CPI last month. That was the biggest gain since February 1969 and followed a 5.4% advance in August. There were also increases in the costs of new vehicles and recreation. But prices for motor vehicle insurance, airline fares and apparel fell.

In the 12 months through September, the CPI increased 1.4% after rising 1.3% in August. Economists polled by Reuters had forecast the CPI climbing 0.2% in September and rising 1.4% year-on-year.

Excluding the volatile food and energy components, the CPI rose 0.2% last month after

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U.S. consumer inflation muted, just don’t buy a used car

U.S. consumer inflation muted, just don’t buy a used car

By Dan Burns

(Reuters) – U.S. consumers on balance paid only a little bit more for goods and services last month as supply chain disruptions that contributed to a bump up in inflation over the summer began to ease, a welcome respite for the millions who remain unemployed.

While that easing pressure on pinched consumers might offer a benefit to Republican President Donald Trump’s reelection prospects against Democratic challenger Joe Biden, it does come with a big “on the other hand” caveat: It is the latest sign of fading momentum in the rebound from this spring’s record-setting economic slump.

A bit of inflation typically is an indication of strengthening demand, an encouraging signal that consumers have reliable sources of income allowing them to contribute to growing an economy that hinges extensively on their spending. But with roughly 11 million still out of work and desperate for a new round of COVID-19 relief from Washington, September’s modest uptick in prices is no such signal.

Here’s Jefferies chief financial economist Aneta Markowska’s take: “After several months of above-trend gains, price pressures are finally normalizing. Both headline and core CPI increased by just 0.2% (month-to-month) in September, with the underlying details painting an even weaker picture.”

Graphic: September CPI: All about used vehicles https://fingfx.thomsonreuters.com/gfx/mkt/azgvojwqepd/Pasted%20image%201602602548532.png

In fact, she notes prices would have been unchanged but for one thing: The largest monthly increase in used car and truck prices since 1969. And with cash-strapped consumers increasingly reliant on their own transport to get to an on-site job, that’s no welcome development.

Food price increases, too, are moderating after a big run up in the spring, but where you eat makes a big difference.

If eating at home, as millions without work have no choice but to do, then food prices were lower for a third

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Fast Take: U.S. Consumer Inflation Muted, Just Don’t Buy a Used Car | Investing News

Fast Take: U.S. Consumer Inflation Muted, Just Don’t Buy a Used Car | Investing News

(Reuters) – U.S. consumers on balance paid only a little bit more for goods and services last month as supply chain disruptions that contributed to a bump up in inflation over the summer began to ease, a welcome respite for the millions who remain unemployed.

While that easing pressure on pinched consumers might offer a benefit to Republican President Donald Trump’s reelection prospects against Democratic challenger Joe Biden, it does come with a big “on the other hand” caveat: It is the latest sign of fading momentum in the rebound from this spring’s record-setting economic slump.

A bit of inflation typically is an indication of strengthening demand, an encouraging signal that consumers have reliable sources of income allowing them to contribute to growing an economy that hinges extensively on their spending. But with roughly 11 million still out of work and desperate for a new round of COVID-19 relief from Washington, September’s modest uptick in prices is no such signal.

Here’s Jefferies chief financial economist Aneta Markowska’s take: “After several months of above-trend gains, price pressures are finally normalizing. Both headline and core CPI increased by just 0.2% (month-to-month) in September, with the underlying details painting an even weaker picture.”

Graphic: September CPI: All about used vehicles https://fingfx.thomsonreuters.com/gfx/mkt/azgvojwqepd/Pasted%20image%201602602548532.png

In fact, she notes prices would have been unchanged but for one thing: The largest monthly increase in used car and truck prices since 1969. And with cash-strapped consumers increasingly reliant on their own transport to get to an on-site job, that’s no welcome development.

Food price increases, too, are moderating after a big run up in the spring, but where you eat makes a big difference.

If eating at home, as millions without work have no choice but to do, then food prices were lower for a third straight month.

If

Read the rest
Used Vehicles Lift U.S. Consumer Prices, but Inflation Slowing | Investing News

Used Vehicles Lift U.S. Consumer Prices, but Inflation Slowing | Investing News

WASHINGTON (Reuters) – U.S. consumer prices increased for a fourth straight month in September, with the cost of cars and trucks rising by the most since 1969, though inflation is slowing amid labor market slack as the economy gradually recovers from the COVID-19 recession.

While the benign report from the Labor Department on Tuesday will have no direct impact on monetary policy, it should allow the Federal Reserve to keep interest rates near zero for a while and continue with massive cash infusions as it nurses the economy back to health.

The U.S. central bank is now more concerned about the labor market and has embraced flexible average inflation targeting, which in theory could see policymakers tolerate price increases above its 2% target for a period of perhaps several years to offset years in which inflation was lodged below its goal.

At least 25.5 million people are on unemployment benefits.

The consumer price index rose 0.2% last month after gaining 0.4% in August. The CPI advanced 0.6% in both June and July after falling in the prior three months as business closures to slow the spread of the coronavirus weighed on demand.

A 6.7% jump in the prices of used cars and trucks accounted for most of the increase in the CPI last month. That was the biggest gain since February 1969 and followed a 5.4% advance in August. There were also increases in the costs of new vehicles and recreation. But prices for motor vehicle insurance, airline fares and apparel fell.

In the 12 months through September, the CPI increased 1.4% after rising 1.3% in August. Economists polled by Reuters had forecast the CPI climbing 0.2% in September and rising 1.4% year-on-year.

Excluding the volatile food and energy components, the CPI rose 0.2% last month after increasing 0.4% in

Read the rest