Sunday, January 11, 2015

11/1/2015: ECB's Favourite Inflation Expectations Indicator is Smokin...

And here's a nice reminder courtesy of of the markets' view of 5-year-to-10-year forward inflation expectations for the euro area:

Note: 5y/5y inflation swap basically measures expected inflation for the period of between 5 years from now and 10 years from now (5 years over 5 years from now). Here is a note on its importance to ECB policy

Needless to say, at ECB inflation target of 2% over the next 1-2 years, we should be expecting 5y/5y to be above 2% mark, not below it. And if previous (2004-2007 period) should be our guide for growth, we should be looking at 5y/5y swap rate at around 2.4%.

Which means the 'flashing red' indicator for ECB is now smoking.

Post a Comment