Wednesday, November 9, after winning Donald trump’s election, the market indicator of inflation expectations, defined as the difference between yields on conventional U.S. Treasury bonds and the yield on government bonds with inflation-protected (TIPS) increased by 12 basis points. This is the largest increase in inflation expectations for the period since September 2012, from database at the Federal reserve Bank of St. Louis, says RBC.
The expected inflation rate based on the yield on 10-year Treasuries as of 23:59 Kyiv time amounted to 1.86% (up from 1.74 percent a day earlier). This is the maximum value from July 2015. The yield on 10-year securities grew by 23:59 kV to 2.06%, jumped from a low of 1.71% recorded in the night of the American vote.
Yield is similar to the term bonds to protect against inflation is 0.20%, follows from the data Bloomberg. Such securities, nominal value (the amount returned to the investor at maturity), and, accordingly, coupon payments are indexed for inflation, compensating the investor for a price increase.
In September annual inflation in the U.S. rose 1.5 percent after the August increased 1.1%.
Trump promises to increase public spending to invest $ 1 trillion in infrastructure over ten years, but at the same time reduce taxes. Infrastructure plan trump can spur not only economic growth but also inflation. And in combination with tax cuts, the budget deficit and, consequently, government borrowings could rise.
«The rise in yields on long term Treasury bonds and higher levels of expected inflation is a logical reaction to the victory trump, given his plans to borrow and spend, but we must remember that the President is not omnipotent and the Republicans controlled Congress may limit the plans trump’s expense,» writes Thomas Byrne of Wealth Strategies & Management.
The surge in inflation is also possible in the case of measures of trade protectionism, promised by trump. Protectionist policies trump, if it is introduced, probably will hit the value of the dollar, which in turn will increase the price of oil and other raw materials, notes Reuters. Limiting trade with China will inevitably lead to higher prices of goods in the United States.
«A trade war with China and Mexico will cause a shock on the supply side (supply shock), probably increasing inflation and reducing real total income,» warned analysts at HSBC Holdings.
Economic policy trump can bring back into the US economy inflation, according to investors 10.11.2016