Donate to Remove ads

Got a credit card? use our Credit Card & Finance Calculators

Thanks to Rhyd6,johnstevens77,Anonymous,MyNameIsUrl,6Tricia, for Donating to support the site

Is rising inflation looming?

including Budgets
TheMotorcycleBoy
Lemon Quarter
Posts: 3734
Joined: March 7th, 2018, 8:14 pm
Has thanked: 1836 times
Been thanked: 424 times

Re: Is rising inflation looming?

#442536

Postby TheMotorcycleBoy » September 15th, 2021, 4:08 pm

dealtn wrote:A noticeable rise in reported inflation day, and the trigger for the Bank of England to explain its thinking.

https://www.bbc.co.uk/news/business-58563417

Whilst the rate isn't that far above the top of the Bank's target, nor significantly high by historical standards, it does mark the steepest monthly increase since comparable records began in 1997.

So that's (3.2%) about 0.6% less than the value predicted by Gilts vs ILGs (3.8ish%).

Help me out and show how me to derive inflation forecasts from the inflation swap curves. ;)

Matt

dealtn
Lemon Quarter
Posts: 4208
Joined: November 21st, 2016, 4:26 pm
Has thanked: 261 times
Been thanked: 1405 times

Re: Is rising inflation looming?

#442603

Postby dealtn » September 15th, 2021, 7:01 pm

TheMotorcycleBoy wrote:
dealtn wrote:A noticeable rise in reported inflation day, and the trigger for the Bank of England to explain its thinking.

https://www.bbc.co.uk/news/business-58563417

Whilst the rate isn't that far above the top of the Bank's target, nor significantly high by historical standards, it does mark the steepest monthly increase since comparable records began in 1997.

So that's (3.2%) about 0.6% less than the value predicted by Gilts vs ILGs (3.8ish%).

Help me out and show how me to derive inflation forecasts from the inflation swap curves. ;)

Matt


Firstly the Index Linked Gilts all reference RPI, not CPI. RPI is 4.8% according to todays announcement.

Secondly the breakeven calculation from the Gilts market is complicated. I didn't read your BofE numbers from the other day but I think they were 3.5%ish across the curve. What's important to note though is this is a "spot" curve not a "forward" curve so it isn't intuitively obvious what the predicted rate of inflation is.

In simple terms if 1 year "spot" inflation is priced at 3.5% and 2 year inflation is also priced at 3.5%, then the 1 year inflation rate in a years time is also priced at 3.5%. The 2 year rate is the average, and since we know the 1 year rate is also 3.5%, then the second year must also be 3.5%.

Were spot prices such that 1 year was 2% and 2 year was 3% then we can infer that (approximately) the 1 year rate starting in 1 years time is 4% (since 1 year at 2% followed by 1 year at 4% gives a 2 year average of 3%). This is called "bootstrapping" where you can construct the forward implied rate (be that inflation, or interest, or FX etc.) from all known spot prices along a curve to derive successive unknown future points in between.

In the example above we knew the 1 year and 2 year rates to get the unknown 1 year rate starting in 1 years time. With a 3 year spot rate (and a 1 year and 2 year and the 1 year in 1 years time rate) we can calculate the 1 year rate starting in 2 years time. With a 4 year (knowing the 1 year, 2 year, 3 year, 1 year 1 year forward, 1 year 2 years forward) you can know calculate the 1 year 3 years forward rate etc.

In practice you will have a pricing model more complicated than this and can derive all sorts of more complicated future rates of multiple periods, and create zero coupon real and nominal interest rates for any future date to use to discount any predicted cashflows back to their net present values (NPV) etc.

I hope I didn't lose you.

88V8
Lemon Quarter
Posts: 2745
Joined: November 4th, 2016, 11:22 am
Has thanked: 913 times
Been thanked: 1011 times

Re: Is rising inflation looming?

#444653

Postby 88V8 » September 23rd, 2021, 10:17 am

So now we have an inflation thread in the Snug.... https://www.lemonfool.co.uk/viewtopic.php?f=29&t=31330
Thread inflation...

If the market thought inflation was now baked in, I would expect to see a downturn in Prefs prices, but I don't. Well, maybe a penny.
My jury's out.

V8

88V8
Lemon Quarter
Posts: 2745
Joined: November 4th, 2016, 11:22 am
Has thanked: 913 times
Been thanked: 1011 times

Re: Is rising inflation looming?

#444952

Postby 88V8 » September 24th, 2021, 9:50 am

And a CaN-like inflation thread in Macro Topics https://www.lemonfool.co.uk/viewtopic.php?f=76&t=29460&start=60.

Keep up at the back now :shock:

V8

dealtn
Lemon Quarter
Posts: 4208
Joined: November 21st, 2016, 4:26 pm
Has thanked: 261 times
Been thanked: 1405 times

Re: Is rising inflation looming?

#450950

Postby dealtn » October 18th, 2021, 10:40 am

"Clearest hint yet..."

https://www.bbc.co.uk/news/business-58951983

MPC concerns about inflation and the likelihood of an adjustment to the policy rate.

TheMotorcycleBoy
Lemon Quarter
Posts: 3734
Joined: March 7th, 2018, 8:14 pm
Has thanked: 1836 times
Been thanked: 424 times

Re: Is rising inflation looming?

#452710

Postby TheMotorcycleBoy » October 24th, 2021, 4:54 pm

Have to say the prospect of inflation is scaring me. Everyone is talking about it now. I've spent the past couple of hours going through all the last months announcements for several of our holdings, and a fair few are mentioning their businesses being hit by rising costs. And this entreprenuial superstar is now sounding the alarm:

Twitter co-founder Jack Dorsey weighed in on escalating inflation in the U.S., saying things are going to get considerably worse.

“Hyperinflation is going to change everything,” Dorsey tweeted Friday night. “It’s happening.”

The tweet comes with consumer price inflation running near a 30-year high in the U.S. and growing concern that the problem could be worse that policymakers have anticipated.

On Friday, Federal Reserve Chairman Jerome Powell acknowledged that inflation pressures “are likely to last longer than previously expected,” noting that they could run “well into next year.” The central bank leader added that he expects the Fed soon to begin pulling back on the extraordinary measures it has provided to help the economy that critics say have stoked the inflation run.

In addition to overseeing a social media platform that has 206 million active daily users, Dorsey is a strong bitcoin advocate. He has said that Square, the debit and credit card processing platform that Dorsey co-founded, is looking at getting into mining the cryptocurrency. Square also owns some bitcoin and facilitates trading in it.

Responding to user comments, Dorsey added Friday that he sees the inflation problem escalating around the globe. “It will happen in the US soon, and so the world,” he tweeted. Dorsey is currently both the CEO of Twitter and Square.
It’s one thing to call for faster inflation, but it may be surprising to some that Dorsey used the word hyperinflation, a condition of rapidly rising prices that can ruin currencies and bring down whole economies.

Billionaire investor Paul Tudor Jones and others have called for a period of rising inflation. Jones told CNBC earlier in the week that he owns some bitcoin and sees it as a good inflation hedge.

“Clearly, there’s a place for crypto. Clearly, it’s winning the race against gold at the moment,” Jones said Wednesday.

But most of the major investors have not gone so far as to call for hyperinflation like Dorsey.

https://www.cnbc.com/2021/10/23/twitter ... world.html

XFool
Lemon Half
Posts: 7557
Joined: November 8th, 2016, 7:21 pm
Been thanked: 1012 times

Re: Is rising inflation looming?

#452750

Postby XFool » October 24th, 2021, 7:27 pm

TheMotorcycleBoy wrote:Have to say the prospect of inflation is scaring me. Everyone is talking about it now. I've spent the past couple of hours going through all the last months announcements for several of our holdings, and a fair few are mentioning their businesses being hit by rising costs. And this entreprenuial superstar is now sounding the alarm:

Twitter co-founder Jack Dorsey weighed in on escalating inflation in the U.S., saying things are going to get considerably worse.

“Hyperinflation is going to change everything,” Dorsey tweeted Friday night. “It’s happening.”

Then he sounds to me as though he hasn't any idea what he is talking about! Inflation isn't "Hyperinflation".

https://en.wikipedia.org/wiki/Hyperinflation#Definition

Hyperinflation isn't "happening".

In addition to overseeing a social media platform that has 206 million active daily users, Dorsey is a strong bitcoin advocate. He has said that Square, the debit and credit card processing platform that Dorsey co-founded, is looking at getting into mining the cryptocurrency. Square also owns some bitcoin and facilitates trading in it.

Talking his own book?


Return to “The Economy”

Who is online

Users browsing this forum: No registered users and 1 guest