Home > interest rates, macro economics > Inflation… still no chance

Inflation… still no chance

Couple months ago I posted a chart on inflation in Canada… even though interest rates have risen since the QE2 announcement, this hasn’t changed inflation expectations dramatically…

Here is the updated long-term chart of inflation expectations as implied by Real-Return bonds…

And here is the above data since the formal QE2 announcement (3-Nov-2010)… the green line is flat implying inflation expectations haven’t changed in Canada…

…although your daily bills (grocery, gas, insurance, etc) have only gone up! How does that add up? Paul Krugman does an excellent job of explaining core inflation (excluding food & energy) vs total inflation.

Update [7-Jan-2010]: Paul Amery at SeekingAlpha talks about (non-existent) inflation expectations globally

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  1. January 2, 2011 at 3:33 PM

    Thanks for the Krugman link. In December Obama announced a wage freeze for US fedral employees. Since so many salaries are set by longer term contracts people are oblivious to the tectonic deflationary forces building up. We’ve seen “earthquakes” in places like Ireland, England, and Greece, where deflation and the public purse come to loggerheads.

    I don’t know when the moment of truth will come for Canada but I predict negotiating collective raises in the public sector is going be more and more difficult.

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