The Daily Prophet: Reflation Trades Show Signs of Life Again

Given up for dead, a small but growing number of investors are again putting on trades that anticipate faster inflation. The bets gained some traction when data out of China on Saturday showed that inflationary pressures emanating from the nation's factories to the world are proving more resilient than economists anticipated. Then on Tuesday, reports showed that the rate of inflation in the U.K. matched a four-year high. And in Sweden, inflation again topped estimates in August.

The implications can best be seen in the bond market, where yields have jumped off their lows of the year. In fact, the outlook for faster inflation in the U.S. hasn't been this high since early June, based on the so-called breakeven rate on five-year Treasury notes. Although nobody is ready to say that inflation is poised to take off, the sense is that the slowdown of the last few months has run its course. One reason, according to the economists at JPMorgan, is the price of oil, which has almost fully reversed its declines from earlier in the year. Also, they say, surveys of global business pricing power have shown a striking rise over the past year, echoing the big 25 percent surge in industrial metals prices year-to-date.