US Inflation Expectations Have Rolled Over by Eric Bush, Gavekal Capital

Given the decline in commodities, perhaps it shouldn’t be too surprising to see breakeven inflation rates rolling over once again. 5-year TIPS implied breakeven inflation currently sits at 149 basis points, 23 basis points off the year-to-date high made in May. 10-year TIPS implied breakeven inflation is at 182 basis points, 12 basis points off the year-to-date high also made in May. Also, 30-year breakeven inflation is down 9 basis points from the high made in May.

US Inflation Expectations

US Inflation Expectations

Some good news is that the five-year, five-year forward breakeven inflation rate, the preferred inflation rate when Ben Bernanke was the head of the Fed, is currently at the high end of the range it has been in 2015. It has trended between 1.95%-2.20% and currently is at 2.16%. However, as the chart below shows this is still on the low end of the range going back to 2003.

US Inflation Expectations