Inflation Outlook - March 21, 2011

Referencing from seeking alpha ---> http://seekingalpha.com/article/259082-top-5-graphs-of-the-week-global-inflation-focus?source=email_the_macro_view

Click through link above for more in-depth inflation commentary (along with monetary policy comments)

• This is mainly commodity driven inflation (I agree)
• Inflation is a greater central theme for central bankers (Duh)
• Emerging Market (EM) inflation out-pacing developed economies inflation

As long as the US inflation lags its peers and EM inflation this should continue downside pressure on the dollar in the short term. The idea with EM central banks is that continued rate hikes should induce dollar selling UNLESS the higher rates are proving to being ineffective. If monetary policy in EMs proves to be ineffective this may induce dollar hoarding as we saw back in the summer of 2008. Even still, the dollar should still be pressured to the downside as long as the EU, the UK and Canada has stronger inflation expectations and hawkish monetary policy (the bigger weights in the dollar index). 

(IF)/Once this period of volatility can normalize these fundamentals should pull through. Core books  based on an inflation thesis should be in good shape longer out. 

Alexander Lê

Managing Partner

Analyze Capital

analyzecapital@gmail.com