Inflation expectations have been ticking higher lately, according to several sources, signaling that headline measures of year-over-year price indexes could reach the Federal Reserve’s 2% inflation target in 2017 for the first time in several years.
Market-based estimates of future inflation have been trending up in recent months, based on the yield spread between nominal and inflation-indexed Treasuries. The the yield spread on 10-year Treasuries, for instance, touched 1.98% on the first trading day of the year, based on daily data via Treasury.gov—close to the highest level in well over two years.
The Cleveland Fed’s inflation nowcast is even higher. The January 2017 estimate for the year-over-year change in the headline consumer price index is 2.28%, up from the 2.07% in December. The core CPI nowcast is a bit softer, but the current nowcast tops 2.0% as well. The key takeaway: this model’s anticipating that the 1.7% annual pace in headline CPI through November (the current report) will soon exceed the Fed’s 2.0% target....MOREWe last visited Cleveland on Dec. 21: "Cleveland Fed: Hope for U.S. Productivity Growth"