Long-term inflation expectations outstrip 2% benchmark

Quick Take

Inflation rates worldwide have surpassed the typical 2% target set by central banks, necessitating effective countermeasures. One such measure is the traditional tool of increasing interest rates to curb inflation.

However, a closer examination of long-term inflation expectations reveals a significant gap above the 2% benchmark. The current five and 10-year break-even inflation rates, standing at 2.18% and 2.24% respectively, clearly demonstrate this upward trend.

The accompanying graph depicts the steady rise of these inflation expectations since June. This trend aligns with the Federal Reserve’s decision to pause rate adjustments, and forecasts anticipate that the tightening policy will continue throughout the year in response to ongoing inflationary pressures in the global economy.

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