Page 10 - ISQ UK_October 2017
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INVESTMENT STRATEGY QUARTERLY
The Beige Book: How Many Times did the Fed Mention Inflation?
Recent months have seen inflation mentions in the Federal Reserve's influential
Beige Book surpass averages for both 2016 and 2017
SEPTEMBER 2018 163
JULY 2018 158
MAY 2018 149
APRIL 2018 141
MARC H 2018 135
JANUARY 2018 121
2017 AVERAGE 128
2016 AVERAGE 118
“Elsewhere in the world, such inflationary pressures are not as obvious, but they
are quietly rising in line with energy prices and any global trade angst related
import cost inflation”
COMMODITIES INFLATION INDICATORS
The decomposition of bond yields allows some insight into the Meanwhile other inflation indicators in the US are hotting up,
progress of inflationary expectations, which have been on the rise including mentions in the influential Beige Book and in corporate
quietly over the past couple of years in the United States. The 5-Year, quarterly earnings transcripts, reflecting both higher commodity
5-Year forward inflation expectation rate - a measure of the average input prices and some signs of wage inflation. Additionally, there
expected inflation over the five-year period that begins five years remains the scope for some inflationary consequences from global
from the date data is reported - has risen from 2% in 2016 to just trade complications, such as tariffs on goods imported from China.
over 2.4% currently. However what is particularly striking over the Bringing it all together, inflation is not rampant in the United States
last five years is the directional correlation of this measure with the but it has firmed and - applying the Fisher effect - it supports further
Brent crude price, a commodity price which reached a four-year increases in interest rates by the Federal Reserve.
high during early October. Oil prices are always desperately macro
influenced but - if we try to bring all the themes and influences RISING PRESSURES
together - the years of low investment in the energy space by oil Elsewhere in the world, such inflationary pressures are not as
companies desperate to shore up their balance sheets at a time of obvious, but they are quietly rising in line with energy prices and any
lower commodity prices, has created a backdrop which is supportive global trade angst related import cost inflation, even in the relatively
of prices. As an aside, these oil price insights reflect a pretty direct slow growing Eurozone and Japan. This has been matched by bond
linkage between commodity prices and inflation. yields edging up in the world outside the US, raising the spectre of
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