Market inflation signals stat update: The prospect of higher inflation continues to join the rise in equity prices. Since Aug 26th, the CRB index is up by 23.7% and the S&P 500 is up by 19.8%. With this, the debate over whether the rise in nominal interest rates are more a response to improving growth instead of inflation has been growing but here’s evidence that its more the latter than the former. Since Aug 26th, the implied inflation rate in the 5 yr TIPS (highest since May today) is up by 67 bps while the nominal 5 yr Treasury yield is up by just 59 bps. The impact is less so looking out 10 years but inflation still makes up a big chunk of the move. The 10 yr implied rate is up by 77 bps while the nominal rate is up by 87 bps.
