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8,308 Posts.

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28/06/22

16:32

Post #: 62254021
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Originally posted by stercs: ↑

The real rate in Europe is now circa ‐8.6 percent with neutral sitting around 2.5 percent real, a near 10 percent gap. The assumption underpinning neutral rates is that a tightening of policy will have an elastic response with inflation albeit this is in a normalised economy, far from where we are today. The supply side of the inflation ledger is still a long way from finding a market‐clearing level with this tension formulating in higher longer‐run inflation expectations. Anticipatory inflation is now seeping into wage negotiations and will result in higher actual nominal wages over the next 12‐24 months.

Either prices for commodities will have to go a lot higher or the real cost of money i.e. interest rates will have to increase a lot to shift the thinking here. It appears the most likely outcome is a combination of the two. This is very much a supra secular thematic and will play out over the decade, if not longer.

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You need to look at the real yield on CPI bonds and compare with the yield on conventional bonds of the same maturity date to get expected inflation.

I've done it for Australia. Long term expected inflation is still 2.5% p.a.

TER Price at posting: 64.5¢ Sentiment: Hold Disclosure: Held
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Last 23.5¢		Change 0.000(0.00%)		Mkt cap ! $184.2M

Open	High	Low	Value	Volume
23.5¢	23.8¢	23.0¢	$217.5K	926.0K

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No.	Vol.	Price($)
66	1320618	23.0¢

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Price($)	Vol.	No.
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No.	Vol.	Price($)
65	1307544	0.230
25	725655	0.225
26	1401865	0.220
4	59283	0.215
9	188082	0.210

Price($)	Vol.	No.
0.235	24844	8
0.240	1063008	35
0.245	448897	13
0.250	161845	16
0.255	362334	11

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