Monday, December 19, 2016

Inflation Expectations Can Unhitch

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*Many wonder where will inflation come from.

*It feeds on itself. That's one reason we call it a cycle. That cycle has begun.

*Inflation is the ultimate risk to markets.

With oil prices moving up consumer expectations for inflation could start moving up. As consumers and investors expect inflation they pay more and that drives an inflation cycle. Inflation is the bubble burster. When central banks reach their 2% inflation targets they will tighten. The US already started. That is a market risk.
Inflation Expectations
The Fed constantly refers to inflation expectations being "well anchored." They care because if inflation expectations start to move up it can feed on itself into an inflation cycle. As consumers expect higher prices they are willing to pay more. That's inflation.
We believe gas at the pump is the biggest driver to consumer inflation expectations.

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