‘Surprise Inflation’ is Spiking

There are such conflicting signals out there at the moment.  Yesterday we saw the Chief Economist from Capital Economics (one of the better track records around) calling a 1% cash rate for Australia before years’ end with 2 more rate cuts later this year as he sees real lower inflation and lower growth than expected.  

Contrasting that the US Fed changed its language this week saying the US will see 2% inflation in the near term.  Gone is ‘maybe’.

The combination of a rising US cash rate and falling Aussie would surely see the AUD fall sharply and yet yesterday’s jump on the trade surplus had some calling an 80c AUD by years end!?

One thing does seem certain, and that is that in the main (maybe we will be the exception), there appears more concern about rising inflation amid softening and widespread stagnant growth – i.e.  stagflation.  The chart below from Zerohedge using Citi’s latest data paints a concerning picture (for those who don’t own gold)….

The global Citi Inflation Surprise Index , which measures price surprises relative to market expectations, is at the highest in more than five years and only just turned positive in December, the first time it’s done that since 2012.  We discuss a couple of these surprises in today’s Weekly Wrap.  The red line is self explanatory.  It’s not a good mix and Trump aside, explains why gold and silver are up strongly already this year.