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Measuring market inflation expectations

  • Will Devlin

    (Treasury, Government of Australia)

  • Deepika Patwardhan

    (Treasury, Government of Australia)

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    Of the available measures of inflation expectations, those available with highest frequency are taken from financial market pricing — so-called ‘break-even’ inflation rates from the bond market and the market for inflation swaps. Bond market derived measures — which can be subject to both positive and negative biases — suggest medium-term inflation expectations are currently anchored within the Reserve Bank of Australia’s target band. Inflation swap rates — which can be subject to their own biases — also suggest that medium-term expectations are well contained. Finally, forward inflation expectations derived from the inflation swaps curve suggest that the market concurs with Treasury estimates that the introduction of the carbon price will have a modest, one-off impact on headline CPI of around 0.7 per cent in 2012-13.

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    Article provided by The Treasury, Australian Government in its journal Economic Roundup.

    Volume (Year): (2012)
    Issue (Month): 2 (August)
    Pages: 5-17

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    Handle: RePEc:tsy:journl:journl_tsy_er_2012_2_1
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    1. Richard Finlay & Sebastian Wende, 2011. "Estimating Inflation Expectations with a Limited Number of Inflation-indexed Bonds," RBA Research Discussion Papers rdp2011-01, Reserve Bank of Australia.
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