I was at the Euromoney inflation conference last week and it's the first year that people were not bullish inflation. Most of the talks was around how the Philips curve is dead, structural changes (technology, demographics, trade...) and how it is disinflationary (which is true).
My point is more about the change in sentiment from previous years when more than not investors were finding BE cheap as they were heading south, mentioning how much value there is being long etc...the trend for lower BE was usually intact despite a small uptick post conference...
We had a series of low CPI prints recently (mostly driven by wireless prices going down), so I wouldn't be surprised get some surprise on the upside...front end at 1.65 is not a bad entry...
Survey answers about direction of the 5y5y BE were centered between 1.8 to 2.2 (so mildly bullish, more an anchoring bias if you ask my opinion).
One take away might be that CPI inflation swaps are quite expensive at 2.25 (but the instrument is biased less sellers of protection.
Interesting presentation by David Mericle, a GS economist with a view that structural changes in inflation are a little hyped. Most people when they discuss these structural changes are focusing on goods while it is really centered around services.
All the stories will somehow focus on the amazon effect. David showed that Wallmart had more impact than amazon since the mid 90s, amazon lower prices don't always show in the calculations of CPI neither.
Global services are the drivers, health care and Obamacare being one of the main ones...
Overall many component of CPI are still trailing 3% y/y except for smaller portions of the index in serious deflation for 15yrs.
Trade was also an important discussion along with the impact Nafta had since 1995, I am mentioning because obviously a huge trump argument and the many changes that could be impacted with current administration.
For the anecdote the organizers were thinking to call the conference the deflation conference next year...interesting switch in sentiment...I am paying attention for upside in BE now that positioning is cleaner. I need to do some research see if the options markets or Risk Reversals are also telling us something and back test the link with BE returns.
