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Our Inflation Monitoring Summary

Report Date: May 2023

Inflation Measures

YoY, %

3m (annulaised), %



3.56(nsa); 1.69(sa)

CPI - Food & Energy



Unit Labour Costs

5.56 (Mar 2023)

Bond Yields, %

10y Treasury


3m Treasury


Real Yields, %

10y Treasury – CPI


3m Treasury - CPI


Table 1.1 - Different inflation measures and Bond yields

As of May 2022, CPI inflation is running at a YoY rate of 4.4% and a 3m seasonally adjusted annualised rate of 1.69% (Table 1.1). Seasonal effects are weighing on the current high inflation readings, which will likely continue being felt until the end of the summer. We expect that by the end of Q3-2023, inflation rates will have normalised at 2% or below.

The Fed embarked in a policy of quantitative tightening (by reducing its balance sheet) as well as an aggressive series of rate rises from 0.25%-0.5% in 3/2022 to 5%-5.25% in 5/2023.

The result of the policy actions by the Fed led to an unprecedented drop in the money supply, as measured by the M2 aggregate. We were not expecting this to occur, as the last time we saw a drop in M2 was during the Great Depression of the 1930s. As we’ll show in this post, the recent decline in M2 is almost as severe an event (to the downside) as the unprecedented increase after March 2020. This required us to adjust our forecasts for inflation going forward. We are going to enter a deflation stage of the inflation roller coaster that started with the Covid-19 pandemic.

Our latest post on inflation, released on the 30th of May 2023 explains why we believe that inflation is on the way, and that by Q4-2023 or Q1-2024, deflation risks will be central stage on economic news media.

Anticipate future inflation

Don't get caught out by inflation!

Having warned in 2021 and 2022 that persistent inflation going forward was a real risk, after the extreme policy actions by the Fed, we now believe that towards the end of 2023, the headline CPI figure (YoY changes) will normalise at 2% or below, as indicated by the fact that the seasonally adjusted 3m annualised inflation is already running at about 1.7%.
We believe that towards Q4-2023 and Q1-of 2024, deflation worries will be center stage in economic discussions. However, we also believe that in the longer-term, inflation will the the greatest risk facing investors portfolios. Investors will be riding and inflation roller coaster which is characterised by periods of inflation and deflation.

Why is our inflation monitoring report important?

-> Inflation is a hot topic at the moment. After lying dormant since 1990, it sems as though inflation has made an unexpected comeback. If in the last decade, deflationary forces seemed to dominate the macroeconomic landscape, the Covid-19 pandemic brought about significant political and social changes.

-> Inflation is a key economic variable in the economy. It has a large impact on the bond market which through the setting of rates of interest moderates the economic growth. Bond investors and central bankers all monitor inflation and bond yields as the key barometer for the status of the economy.

-> Due to this position of the US in the global economy, we believe that future inflation in the US will spill over to the rest of the world, as countries will need to increase their money supplies in order to keep their exports competitive with the US. Inflation in the US does not mean that the USD will decline relative to other currencies but mostly relative to real assets whose supply is fixed or slow growing.

Who would benefit from our report?

-> Global investors who have exposure to the bond market.

-> Industry Sectors or activities that have interest rate exposure (Banks, Real Estate, Leveraged Buyouts, etc).

-> Corporations or investors who are exposed to commodities.

-> - Investors or asset allocators who are uncertain of how to quantify risks and opportunities due to different inflation outcomes in the coming decades.

-> Risk managers who want to measure inflation risk and perform educated guesses on different inflation scenarios.