US inflation expectations, the intermarket reading
How are US inflation expectations evolving? An important question, especially in light of what is happening on the tariff front. Let us analyse this issue from an intermarket perspective.
To do this, we exploit the intermarket relationships between the main instruments that can tell us what investors are expecting on the price front: TIPS and Treasuries.
The first chart shows the trend in the ratio of short-term TIPS to short-term Treasuries. The sharply rising trend of the indicator suggests that the former are outperforming, and the signal that can be derived from this is a sharp rise in short-term inflation expectations. Particularly interesting is the surge recorded in recent weeks, while on a technical level we can see that the indicator is above its moving averages and that the 50 moving average crossed the 200 moving average at the end of January (bullish signal).
The scenario is not much different when analysing long-term expectations. The graph is shown above.
Finally, one could ask whether inflation expectations are stronger in the short term or in the long term. By comparing the two indicators above, we can try to answer this question with the graph above. The red line represents the short-term trend, the black line the medium-term trend and the yellow line the long-term trend. The three averages agree in indicating a greater weighting of short-term inflation than long-term inflation.
