Even in 2009 CPI dropped by only 5%. It's possible, but unlikely in a fiat world. Maybe they'll get a bump in value though. We'll see March #s soon. Maybe it's structured so they can settle early, get a bit more $ out of it..
I have never worked on CPI, so I cannot say how the nuts and bolts of the calculation work. But, I am very curious how governments will treat rent abatement for tenants who tell their landlord that they cannot or will not pay their full rent any time soon. If they skip out on paying rent altogether, that's probably not considered to be a transaction for CPI purposes. But, if my landlord agrees to drop my monthly rent from $1,000 to $750 until the end of 2020, is that captured as a price decrease? Or is there some logic through which the government would still view the price as $1,000 for CPI purposes, and the $250 is just some sort of rebate that doesn't get captured?
The drastic decline in the price of petroleum would certainly be helpful for a lower CPI, but I'm not sure the weight is really that important. But shelter is like one-third of the index...
I am not holding out much hope that the deflation derivatives will finish in the money. Maybe the best hope is that the counter-party will want them off its books for some reason and would agree to a favourable cash settlement?
SJ
