Contrarians will have noted a recent cover story in Bloomberg Businessweek titled: “Is Inflation Dead?”. Indeed, core inflation has been mired at or below 2% for most of the decade in the developed world, and inflation expectations have stayed low. This, in turn, has caused global central banks to maintain very accommodative monetary conditions, most recently manifested by a halt to the Fed rate hiking cycle even though real interest rates are still near zero (and well below the economy’s underlying real growth rate).
However, the leading U.S. economy has been undergoing a gradual, stealth-like breakout in some key core inflation gauges, including new cyclical highs in the Cleveland Federal Reserve’s Trimmed-Mean and Median inflation measures. While long-term breakeven inflation rates have edged up this year, this has mostly been driven by higher oil prices.