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The website you are accessing is created and maintained by another entity. We make no representation or warranty with respect to the information contained on the site or that it is appropriate in all jurisdictions or countries, or for use by all investors or counterparties. The products and services discussed at this site may not be appropriate for sale or use by all investors or counterparties. By providing this link, we are not providing you with investment advice or offering securities for sale to you. All persons and entities that access this site do so on their own initiative and are responsible for compliance with applicable local laws and regulations.
Q3 2020 Bond Compass
PriceStats® Analysis
A look at quarterly measures of inflation based on prices from millions of items sold by online retailers to help investors anticipate and evaluate the impact of inflation.
US: Deflation Defeated?
In the Q2 Bond Compass, the worry was deflation. We are more relaxed today. First, measured inflation has made a decisive turn. In June, PriceStats recorded its largest rise ever; headline inflation should trough before deflation threatens. We also note that measured inflation likely significantly overstates the rate of disinflation. As Alberto Cavallo, cofounder of PriceStats, notes in a new research paper, the true rate of inflation adjusted for the basket of goods consumers are currently purchasing is almost a full percentage point higher than the Bureau of Labor Statistics’ (BLS) published measure.
Eurozone: Trough Reached?
The Eurozone was even more vulnerable to deflation thanks to a lower starting level for inflation before the crisis. Nevertheless, in a similar vein to the US PriceStats signal, a trough appears to have been reached in June. This is reflected in market-based inflation expectations too, which in spite of the collapse in current inflation, are back to within 10 bps of their pre-crisis level.
Emerging Markets: Conflicting Forces
Inflation across emerging markets has been hit by a series of conflicting forces. The collapse and rebound of fuel prices was offset by higher food prices and the potential for pass-through from currency weakness. So far, inflation looks to be under control, at least in aggregate. This is especially important for those countries that have embarked on asset purchases for the first time and are, therefore, testing the credibility of their central banks.
Basis Point (bps)
A unit of measure for interest rates, investment performance, pricing of investment services and other percentages in finance. One basis point is equal to one-hundredth of 1 percent, or 0.01%.
Inflation
An overall increase in the price of an economy’s goods and services during a given period, translating to a loss in purchasing power per unit of currency. Inflation generally occurs when growth of the money supply outpaces growth of the economy. Central banks attempt to limit inflation, and avoid deflation, in order to keep the economy running smoothly.
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