Bonds pay interest based on the expected inflation rate until maturity, plus a fair risk premium over inflation based on the riskiness of the bond.
If five-year Treasury bonds are yielding 1.25%, as they were on November 2nd, then a negative 0.55% real yield on inflation-linked bonds implies an expected inflation rate of 1.8%.
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The bond also gives investors a chance to express their opinion on the expected rate of inflation in Japan over the next ten years, says John Richards of Barclays Capital in Tokyo.
We are now willing to buy safe bonds that pay above our expected rate of inflation (after tax) out to 7-10 year maturities rather than the 3-5 year target we have maintained for the past two years.
The second criterion for asset class inclusion is that the expected return must be higher than the inflation rate.
Mr Koizumi's last months coincide with accelerating economic growth and a definitive end to seven years of grinding deflation in November core prices rose by 0.1%, and a positive core inflation rate for December is also expected to be announced on January 27th.
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"November's lower than-expected inflation data keeps the door open for another interest rate cut early in 2008, " said Global Insight economist Howard Archer.
Rising commodity prices feed into rising real estate prices, as investors rush to buy real assets that are expected to keep up or even exceed the rate of inflation.
Fare increases would "broadly follow inflation" if passenger numbers grew at the expected rate, added Mr O'Toole, but he could offer no commitment that fares would not increase at a higher rate than that if these projections proved wrong.
In other overnight news, European Union consumer price inflation in July rose at a higher rate than expected, at a 1.8% annual rate.
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Core U.S. consumer prices (discounting energy and food) rose a less than expected 0.1% in July, but the core inflation rate was 2.4%.
Such a rate, they suggested, could lie anywhere between 4.5% and 6.5% ie, the sum of expected inflation of about 2.5% and a real interest rate of between 2% and 4%.
Inflation is expected to hover around the 5% mark with another rate hike coming in June, as the government continues to rebalance the economy by boosting consumption.
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On the other hand, an acceleration in the inflation rate to just 3.0% would be expected to boost the level of the index by 8.92% annually through 2019.
Second, the headline inflation rate, currently 3.7%, is expected to fall sharply in the next few months, as last summer's rises in indirect taxes and mortgage rates drop out of the calculations.
Projections will include the expected pace of economic growth, the anticipated unemployment rate and any notions of inflation.
Troubled businesses and retailers might have expected that the encouraging news on inflation would open the door to another interest-rate cut.
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The BOE said the annual rate of inflation will remain above its target for longer than expected, but it won't tighten monetary policy and risk derailing a recovery.
The Cleveland Fed inflation estimates, based on financial market data including the interest rate spread between ordinary and inflation-protected Treasury bonds, show expected inflation of 1.4 percent per year over the next ten years.
The power-sharing deal is expected to keep Zimbabwe's melting economy from a total collapse: Its official inflation rate of 231 million percent is the world's worst, and the United Nations estimates that 5 million people need urgent food aid.
The year-over-year consumer inflation rate has been 4.9 percent for the past two months and is expected to rise.
The figure is still above the ECB's target to keep inflation below 2%, but the lower-than-expected number could fuel calls for an interest rate cut next week.
He also expressed disappointment at higher-than-expected inflation, which stands at 2.7%, but reiterated the Bank's belief that the rate would come back down to its target rate of 2% over the next two years.
The Reserve Bank of India raised its repo rate to 6.75% from 6.5% as expected Thursday, but raised its inflation expectations by 100 basis points to 8% now, up from 7%, the Bank said in a press statement.
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Consumer-price inflation is already at 3.3% and expected to rise above 4% (double the official target rate) later this year.
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