Morgan Stanley's Arnaud Marès says stable inflation expectations are not so much a sign of confidence as of indecisiveness across the market as to whether central banks are more likely to miss their target on the upside or the downside.
"This gives a new meaning to the notion that risks are 'finely balanced,'" Marès writes in a note to investors.
Acknowledging that “this is a perplexing time for central bankers,” Marès notes that “inflation expectations remain firmly anchored in the neighborhood of their targets.”
“This should be comforting, yet it is not,” he says.
“The variance of medium-term inflation expectations has been steadily increasing,” leading both those who believe deflation is a bigger threat than inflation and their opposite numbers to suspect that the expectation of “stable inflation” is a good deal less than realistic.
U.S. wholesale prices rose in July for the first time in four months, easing immediate deflation fears in the world's largest economy.
The producer price index, which measures wholesale inflation — the prices that businesses pay for their goods — rose in line with expectations of 0.2 percent, snapping a decline since April, according to figures from the Department of Labor.
The increase was mostly on the back of higher food and energy prices.
After stripping out food and energy, the "core" prices for finished goods were up 0.3 percent in July, the largest increase since January.
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