Longer term inflation views/China/Sentiment/RL

I'll bring up again my belief that the key longer term question on inflation is not where we go to by yr end this year in terms of deceleration as an inflation spike is typically followed by a fall but where a sustainable inflation rate will be from there. Are the salad days of 1-2% achievable anytime soon? Are goods price inflation going back to its long term trend of zero on average in the immediate future? Is services inflation going to settle back to about 3% which is the historical run rate? Rather than hear me chime in again by saying not anytime soon, let's look at what the markets currently have priced in when looking out a long 10 years in the 5 yr 5 yr forward (guessing where inflation will be on average in years 6 thru 10). 

If we first look to Europe, if you haven't noticed its 5 yr 5 yr euro inflation swap, which used to be a favorite inflation expectations gauge of former ECB president and negative interest rate adherent Mario Draghi, is just below the highest level in 13 years. It currently stands at 2.62%, double the level in January 2020 and up from 2.36% at the beginning of 2023. The US 5 yr 5 yr inflation breakeven is at 2.40% but was at 2.53% on Monday before the Treasury auctions and new on the run issues. It was at 1.80% in January 2020. Now these are still relatively low readings on inflation no question but because they remain above the 2% targets of these central banks and well above the pre Covid levels and it gets to the higher for longer interest rate theme possibilities. 

I do want to point out that with respect to the US 5 yr 5 yr, when it trended between 2.5-3% in the few years post GFC, there was a widespread belief that multiple rounds of QE and years of zero rates would lead to much higher inflation that investors were betting on but we know didn't come to fruition because of the missing piece of government fiscal spending. Also, all that QE ended up just back at the Fed in the form of bank reserves. Instead we had huge asset price inflation in just about everything.