Inflation Risks Are Now Even More Woefully Underpriced

Authored by Simon White, Bloomberg macro strategist,

TIPS have burst into life after Donald Trump’s win, with breakevens up over 10 bps, but the market is still to fully reflect extant inflation risks that have been exacerbated by the result of the election.

Donald Trump’s victory wasn’t necessary to stoke inflation in the US, but it helps. Price growth has become entrenched and the fabled last mile of disinflation is becoming a marathon. Resilient growth, strong corporate-profit margins, burgeoning stimulus in China and a nigh-on $2 trillion US fiscal deficit had already set inflation on a path of revival. If Trump governs as expected – tariffs, tax cuts, more spending - price-growth risks have only intensified.