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Daily Archives: May 2, 2008

Inflation conundrum

Everybody talks about inflation, but market-based measures of inflation expectations have remained remarkably stable.  We find this discrepancy between what investors talk about and what they seem to do puzzling.  … One is that while inflation is currently a concern, most investors trust that central banks will ensure inflation stays in check over the longer term by taking appropriate action.  Another is that market-based measures such as breakeven inflation rates may be distorted by crisis-induced buying of nominal bonds and thus do not reflect investors’ true inflation expectations.