The Kondratyev cycle is a 54-year fluctuation in wholesale prices comprising 27-year upswing and downswing phases.

The cycle is global in nature but can be tracked conveniently using UK WPI information, which extends back to the 18th century – see first chart. The cycle is evident in price levels until the second world war and inflation rates thereafter (reflecting the 1930s demise of the gold standard).

The last cycle peak in 1974 was followed by a 27-year downswing to a trough in 2001. WPI inflation is now a decade into another 27-year upswing that is scheduled to peak in 2028.

The second chart explores the relationship between the Kondratyev cycle and US Treasury yields. Yields peaked in 1981, seven years after the inflation peak, and retested their high two years later. The secular bond bull market began in earnest in 1984, nine years after the Kondratyev peak.

This lag may reflect the behaviour of monetary policy-makers, who took a long time to be convinced that the trend in inflation had reversed and they could afford to loosen.

Recent developments are the mirror-image of the 1970s / 1980s. Consistent with the timing at the peak, the Kondratyev cycle trough of 2001 was followed by a low in Treasury yields seven years later in 2008. This low was retested and rejected last year, nine years after the inflation trough.

The suggestion, therefore, is that the interest-rate cycle is in a similar position to 1984 but with yields now about to embark on a sustained rise. The trigger for such a trend change could be a hawkish shift in monetary policies during 2011, led by emerging economies, as the well-advanced upswing in WPI inflation extends and broadens out to consumer prices.