Here is what BIS had to say in September review.
In general, I find BIS stuff a lot more productive
than of any of the bloggers out there. A lot to
learn for me personally. Very tedious and long, though <G>
bis.org
Market expectations of inflation moderated in the period under review, at
least as proxied by break-even inflation rates, ie the differences in the yields of
nominal and inflation-indexed securities.1 By 22 August, the break-even
inflation rates derived from the yields of 10-year securities were 2.30% for both
the euro area and the United States, a decline of around 15 and 35 basis
points, respectively, since end-May (Graph 5, right-hand panel). The
moderation was more marked at shorter ends of the yield curve: for instance,
the one-year forward break-even rate at the two-year horizon declined by
nearly 70 basis points over the period from end-May for the United States; the
corresponding break-even rate in the euro area declined by 35 basis points
(Graph 7, left-hand panel). This decline coincided with the fall in oil and other
commodity prices from the very high levels observed in early July, which
appears to have alleviated concerns about short-term inflationary pressures
(Graph 7, right-hand panel).
At the same time, forward break-even rates painted a very different picture
at longer horizons. Between early June and late August, forward break-even
inflation rates beyond the six-year horizon rose for both the United States and
euro area (Graph 7, centre and right-hand panels). Continued worries about
inflation over the longer term were consistent with investors pricing the
possibility that key central banks might need to maintain a more
accommodative policy stance than normal to contain the risks to economic
growth in an environment of stressed financial markets. |
