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Inflation is on the rise. Are investors too complacent?

Are expectations of three or four rate hikes too low?

With the first Fed funds rate hike of 2018 likely to occur later this month, inflation expectations are top of mind. How many more will follow? Tim Duy argues that seven hikes is still "gradual".

Authored by economists and asset managers, we've listed the best papers on the Savvy Investor platform covering inflation expectations, monetary policy, the Phillips curve, and market-related implications.   

Savvy Investor

WEBINAR 15 Mar 2018: US Inflation - Here to Stay or Gone Tomorrow? (BNP Paribas AM)
The prospects for higher inflation are stronger now than at any other point in the post-crisis period. What are the sources of price pressures, how long might they persist, and how can investors prepare?

The Inflation Tide is Ready to Turn (AB, Feb 2018)
(For compliance reasons, this paper is only accessible in North America and South America.)
With inflation stubbornly low, many have doubted the Phillips Curve. AB explains why a Phillips-based analysis doesn’t quite tell the full story, and a more holistic assessment is needed to show that inflation is poised to rise.

A rising trend in US inflation (BNP Paribas blog, Mar 2018)
BNP Paribas's outlook for US growth and inflation prospects has improved considerably since early 2018, affecting treasury yield and TIPS breakeven targets. Here they discuss US inflation and the Fed's monetary policy in detail.

Unemployment and Inflation (Tim Duy's Fed Watch, March 2018)
Tim Duy examines the unemployment situation and concludes that the gradual pace of tightening, to date, may have been too gradual. Talk of continued gradualism may have made investors complacent - the situation may change quickly.

Interest rate outlook: Above-trend growth could cause U.S. inflation later in 2018 (Invesco blog)
(For compliance reasons, this paper is only accessible in the USA.)
In this blog, Invesco explains why they believe inflation is likely to remain low for the first half of this year.

Capital Market Line: The Capability Cycle Keeps on Giving (PineBridge Investments, Jan 2018)
Amongst other topics, PineBridge's latest Capital Market Line discusses the capability cycle and the implications of a reflationary environment on various asset classes and equity sectors.

Searching for the Phillips curve: the puzzle of missing inflation (Hermes IM, 2018)
Despite the occasional positive data point, inflation has been largely absent, leading Hermes Investment Management to examine the robustness of the Phillips curve (and the relationship between inflation and resource utilisation).

Fixed Income Market Outlook - Myths and Realities (BlackRock, Feb 2018)
BlackRock’s CIO of Global Fixed Income, debunks market myths and discusses recent developments.

Global Fixed Income: Lessons from Volcker, Reagan and the Great Inflation (Eaton Vance, Feb 2018)
Eaton Vance believes that there may be troublesome and persistent increases in CPI forthcoming, leading consumers to struggle to maintain the purchasing power of both their savings and their investments.

The Shift to Reflation: Assessing the Impact to Portfolios (PineBridge, 2017)
Academics say that Sharpe ratios are relatively consistent for asset classes over long periods, but possibly not under different regimes. PineBridge identifies 5 different market regimes, and asset classes that perform well in each.

Some Like It Hot: Fiscal Policy, Inflation and the Role of Real Assets (QMA, March 2017)
QMA analyzes normal inflationary periods and periods of above average inflation to make the case for allocating to real assets. Real estate, commodities, infrastructure, and TIPS all tend to perform better during inflationary periods.

Why is inflation so low? The growing deflationary effects of Moore's Law (Vanguard, 2017)
Vanguard shows how technology and Moore's Law can lead to deflationary effects, and how this could be one explanation of why inflation has fallen short of its 2% target.

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