Inflation; time to transition from "transitory" talk?
The latest US Consumer Price Index data showed a 4.2% increase from a year earlier. But this was labelled as "transitory" by the Fed, being measured against historically low prices at the height of the pandemic last year and affected by "one-offs" such as rising used car prices.
The May print (released this month) could be even higher, and will again be attributed to the same supply-constraints and base effects.
A spike in inflation or a change in trend?
Data: bls.gov/cpi. The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.
However, there is a groundswell of opinion suggesting that we are in the midst of a shift-change in the inflation trend. Changes to supply chains and labour markets, combined with extraordinary stimulus and loose fiscal/monetary policy, could ultimately lead to higher for longer inflation.
Meanwhile, the recent pullback in expected inflation may provide an attractive entry point.
Breakevens take a breather
Data: Tabula and Bloomberg, 6 June 2021. Breakevens represents the Bloomberg Barclays US 10 year Breakeven Inflation Index (rebased).
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