Investors underprice rising CPI risk in inflation swaps

9 articles · Updated · Real Economy Blog · May 11

Ahead of Tuesday’s April CPI release, one-year swaps traded at 3.25% and two-year swaps at 2.93%, while economists forecast headline inflation rising 0.7% monthly and 3.7% annually.
They expect supply-shock buffers to run out within three to four months, pushing real wages negative as nominal pay rises 3.6%, and see core CPI increasing 0.3% on the month and 2.6% yearly.
Analysts warn BLS revisions after last year’s extended government shutdown could add upward pressure, with headline CPI peaking at 4.5% or higher and nearing 5% if Persian Gulf oil flows remain disrupted.

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