Spanish yields tell me inflation will bounce

Spanish inflation was in the news this past week, reporting a rise from July’s 2.1% reading to 2.4% for the month of August 2023.

However, the main story of the Spanish inflation rate appears in the first chart below.

Mean reversion beckoned, especially following parabolic price moves.

The second chart shows the Spanish 2 year government bond yield compared to the same inflation rate.

The ‘stubbornness’ of the bond yield (in orange) holding up at 3.42% tells me that inflation move back higher.

I’ll watch for the 4.5% region as the first stop.

September 2, 2023

by Rob Zdravevski

rob@karriasset.com.au