Inflation Pressure? Here’s What The Market Is Saying

As the economy shows signs of life, and the Federal Reserve hints at raising interest rates, market participants continue to debate whether or not inflation is, or will be, a factor.

So is inflation right around the corner?

One primary indicator of inflation that I follow is saying “not so fast?.  The chart below looks at the ratio of Treasury Inflation Protected Securities ETF (NYSEARCA:TIP) and the 20+ Year Treasury Bond ETF (NASDAQ:TLT).  When the TIP/TLT ratio is headed lower, inflation is of less concern. When it is rising, it is of higher concern.

As you can see in the chart below, it hasn’t been a major concern in some time (trading within a 6 year downtrend channel).  Early in the year, however, the ratio tested the upper downtrend line and failed (point 2). And now it has broken below rising support (point 3).

TIP/TLT Ratio Chart – Inflation A Concern?

So even with the Federal Reserve hinting at further interest rate increases, this indicator is saying that inflation is still at bay. That said, if inflation is really on rise again, one would need to see the ratio breakout above its 6-year declining channel.

Thanks for reading.

Twitter:  @KimbleCharting

Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.