Goldman: Beware of higher inflation next year

Treasury bonds traders
Getty Images

Investors are looking for the next big contrarian trade after the widely expected first Fed rate hike in nearly a decade on Wednesday. A prominent Wall Street strategist believes she found it.

Goldman Sach senior rates strategist Silvia Ardagna told clients last week the market is mispricing the potential of rising inflation:

"As unemployment continues to fall and excess slack gets absorbed, we expect that US core and services inflation, which are already contributing about 2 percent to headline inflation, will continue to accelerate gradually but faster than the market expects."

Ardagna noted how the futures market is pricing inflation to average 1.25 percent over the next five years, which she says is too low as stronger wage growth and easier energy price comparables will make 2016 more reflationary.

Here are the ramifications of higher inflation and how she recommends trading it.

Contact Investing


    Get the best of CNBC in your inbox

    Please choose a subscription

    Please enter a valid email address
    Get these newsletters delivered to your inbox, and more info about our products and service. Privacy Policy.