Thursday, July 3, 2025

Disparity Between US CPI and 10Y Highest Since 1980

The latest CPI print has done little to settle the debate between team “transitory” and team “persistent” inflation— if anything, it has only intensified the two polarizing viewpoints. Indeed, as Deutsche Bank’s Jim Reid puts it, “even though US CPI smashed expectations again, the data isn’t going to change anyone’s mind of whether inflation is transitory or not.”

Putting the debate aside, however, Reid finds an even more interesting signal that might be of interest to investors. The current divergence between the US CPI and the 10-year Treasury yield has surged to 3.5%— the widest since 1980. Even more interesting, though, is the fact that the gap has only ever been negative for 10 months in the past 70 years, being in 1974, 1975, and 1980.

Such a deeply negative (albeit crude) proxy for real yields is great for financial conditions today,” explained Reid. however, he asks, “are we building up to a big accident with such a mismatch between inflation and bond yields?

Coincidentally, it is interesting to note that the Federal Reserve has not mentioned how high it anticipates inflation will actually reach as the economy continues to reopen. Just like the rest of us, officials are probably surprised by the latest April and May print, albeit they will likely continue to peddle the “transitory” narrative come next’s policy meeting.

Indeed, as inflation continues to inch higher, inflation expectations and wage demands will correspondingly rise as well. Already, employers are struggling to fill vacant positions as workers demand higher wages amid a booming demand for goods and services. This means that the pre-pandemic labour force participation rate may have to increase even further than previously anticipated in order to mitigate secondary effects.

In the meantime, the Fed will presumably refrain from quantifying its inflation expectations until all unemployment benefits are phased out and schools fully reopen. Investors are now stuck waiting until September’s data for clarification on whether the current labour shortage is due to generous unemployment benefits (which are slated to expire then), or if other, not-so-transitory factors are at play.

In short, the gap between the CPI run rate and the 10-year yield brings attention to the idea that investors may end up startled if inflation does not end up being so transitory, regardless of what the Fed claims.


Information for this briefing was found via Barron’s. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

Video Articles

Gold Drilling Scaled to 60,000 Meters: How Big Can This Get? | Roger Rosmus – Goliath Resources

Baselode Energy To Acquire Forum Energy: The Merger Of Equals Deal

TriStar Gold: The Revised Castelo de Sonhos Prefeasibility Study

Recommended

ESGold To Expand Mine Building At Montauban In Advance Of Gold & Silver Production

Goliath Resources Expands 2025 Drill Program To 60,000 Metres

Related News

A Dilemma for the BoC: Mortgage Interest Costs Were the Primary Driver in May’s CPI Print

Latest data from Statistics Canada shows consumer prices rose 0.4% month-over-month to an annualized 3.4%...

Tuesday, June 27, 2023, 08:38:23 AM

US Producer Prices Accelerate 6.2% in April as Inflation Burns Hot

In another sign that inflation in the US is running red-hot, producers passed down significantly...

Thursday, May 13, 2021, 04:30:00 PM

US CPI Rises to 3.2% in July

Inflation in the US rose another 0.2% month-over-month in July, resulting in an annual increase...

Thursday, August 10, 2023, 08:39:28 AM

U.S. Consumer Price Index Rises 0.4% in September

The U.S. Bureau of Labor Statistics reported today that the Consumer Price Index for All...

Thursday, October 12, 2023, 09:10:07 AM

The Economic Impacts Of Biden’s Proposed $15 Minimum Wage Hike

America’s minimum wage, which has been stagnant since 2009 at a paltry $7.25 per hour,...

Tuesday, February 9, 2021, 10:27:00 AM