Recently, an indicator that is relatively unpopular in the financial market but reflects the expectations of traders who are most sensitive to U.S. inflation shows that in the next five months starting from May, the annualized level of the U.S. consumer price index CPI will reach

US inflation peaked? This overlooked indicator suggests otherwise.

Recently, an indicator that is relatively unpopular in the financial market, but reflects the expectations of traders who are most sensitive to U.S. inflation, In the next five months starting from May, the annualized level of the U.S. Consumer Price Index CPI will reach or More than 8.5%.

As of Tuesday, pricing or derivatives instruments related to the inflation-protected bond TIPS market hinted that the U.S. CPI growth rate in May announced on Friday would reach 8.5% year-on-year, higher than the median forecast of 8.2% given by economists, and consistent with It is consistent with the 40-year high set in March this year. Traders also expect inflation figures to climb to 8.6% in June and July, hit 8.8% in August and September, and then ease slightly to 8% in October.

The following table shows the overall CPI in the United States relative to the expected pace of change in during the same period last year..

Investors are now wavering between two distinct narratives: Either inflation has actually begun to decline, or this so-called "decline" has become a false hope. Not many people seem to realize that despite the Federal Reserve's aggressive interest rate hikes, the overall CPI data is still likely to continue to rise.

In financial markets, hedge funds , mutual funds , fund managers, and basically everyone involved in inflation swap transactions can influence pricing. Edward Moya, senior market analyst for the Americas at Oanda said:

If their view is confirmed, the Fed's more aggressive tightening plan will start to be priced in by the market, and we may see more 50 basis points of increases throughout the rest of the year. interest.

Clearly, there will be a sell-off in the bond market and it will be difficult for investors to continue holding risky assets.

Moya said in a phone interview with the media that overall, market expectations have shifted to the view that "inflation may peak in a few months."

Gang Hu, a TIPS trader at New York hedge fund WinShore Capital Partners, said traders expect CPI to continue to rise, mainly due to rising energy and food prices, as well as the Russia-Ukraine crisis.

Gang Hu said on the phone:

The fixed trading market shows that in the next five to six months, we will see quite strong inflation data, and then the market will become less and less confident that inflation will peak, and we don’t know when inflation will release. slow.

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