Bloomberg News

Deutsche Bank Creates Tradable U.S. Core Inflation Index

September 04, 2012

Deutsche Bank AG, Germany’s biggest lender, is offering an over-the-counter traded index that tracks U.S. inflation excluding food and energy prices.

The DB Core US CPI Index follows the core consumer price index, which doesn’t include the more volatile components of CPI, providing “a more accurate measure of the overall trend in consumer prices,” the Frankfurt-based firm said today in a statement. Consumer prices increased 1.4 percent in July from a year earlier, compared with 2.1 percent for the “core” index, according Bureau of Labor data.

“We are seeing interest from clients for a variety of reasons that include obtaining exposure to a more stable measure of inflation, greater diversification from other assets classes,” as well as using the index as a hedge, Allan Levin, head of inflation trading for North America at Deutsche Bank in New York, said in the statement.

The DB Core Inflation index is implying 1.6 percent inflation in the next 12 months based on one-year inflation swap prices, Deutsche Bank said.

The Federal Reserve is considering adding to the $2.3 trillion of government securities it has bought since 2008 to reduce unemployment stuck at more than 8 percent. While the central bank’s unprecedented measures have sparked concern that the flood of liquidity will spur runaway price increases, core inflation hasn’t climbed to more than 2.3 percent since September 2008.

“There may be a scenario where the increase in stimulus could create a boom in the future which would cause wage inflation and would also cause other prices to go up,” Levin said in a telephone interview, referring to Fed easing. “We expect to see hedge funds, insurance companies and asset managers trade the index.”

To contact the reporter on this story: John Detrixhe in New York at jdetrixhe1@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net


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