US: Movement in short-term inflation expectations

Inflationary pressures remain historically high. As manufacturers continue to reflect the highest cost pressures and subsequently these costs to their sales prices, inflation remains prevalent in the services sector globally. The current state of input cost indicates that inflation will remain high in the coming months, at least until the end of the year.

 

Low interest policies, which minimize financing costs, keep the private consumption demand alive. While an increase is observed in loans, we also observe pricing behavior that deteriorates due to both cost and demand factors. Since the deterioration in pricing behavior means inflation uncertainty, the warming effect continues. The main factor underlying the new policy adjustments of major central banks, especially the Fed, called tapering, is the need to be protected from the toxic effects that reflationary policy may now be more harmful than beneficial. Therefore, despite the rough economic recovery, inflation pressure may lead Central banks to a more normalized policy.

 

Recently, there has been a significant movement in short-term inflation expectations. The PMI input cost series is highly correlated with global consumer price inflation. This year’s rise in inflation has lasted longer than policy makers expected, making it difficult to characterize such price increases as temporary. We may continue to see the volatility in short-term expectations reflected.

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