There is no prize for guessing which US data release will be most widely watched this week. The consumer price index for January arrives on Valentine’s Day, with investors primed to look for any evidence of an uptick after the employment report for the same month revealed the strongest annual wage gains since 2009.

The consensus from economists is that the annual rate of inflation, excluding energy and food, will have eased to 1.7 per cent last month from 1.8 per cent in December. It is also worth noting that despite investors’ fears, there is a weak historical link between wage gains and the level of the consumer price index.

But there is no question that inflation expectations— as measured by the bond market — are rising.

One gauge for investors is five-year inflation expectations. The so-called five-year/five-year forward break-even rate provides a clearer long-term view of the market’s expectations for inflation as it excludes short-term inflationary noise from higher commodity prices.

The US Federal Reserve’s 5yr/5yr measure of inflation expectations has risen appreciably since December and has returned to a level seen in late 2014.

“Lowflation is over, normal inflation is back. This is the old normal, but markets need to get used to it again,” say Bank of America Merrill Lynch currency strategists.

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