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Differing Trends In US and EU Inflation Expectations

EUROZONE
  • Lagarde’s speech put focus on inflation expectations, seeing compatible policy rates in restrictive territory “if there were evidence that high inflation risked de-anchoring inflation expectations”.
  • Against that backdrop, note that whilst EUR 5Y5Y inflation swap rates are coming from a much lower base than their US counterpart, the two have opposing trends.
  • EUR inflation rates are climbing and close to initial highs early in the Ukraine war (39bps higher than average Jan’22 rates) compared to whilst US inflation rates trending lower (8bps higher) – see chart.

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