One last dance for US core CPI?

The market seems fairly confident that US inflation has finally peaked and the YoY rate will continue to trend lower, both for headline and core inflation. While there are clear signs that inflation is in fact cooling (see for example commodity prices, shipping rates or even money supply), underlying inflationary pressures remain extremely elevated, especially in the more sticky parts of the CPI basket. This was evident also in the latest inflation report: the decline in the volatile items, such as energy and used cars, was more than offset by a large increase in the sticky components (rents, medical care,…). This part of the CPI report is particularly large and it plays an even bigger role in core CPI. Add to that the “base effect”: last year inflation was relatively low and as a result it only takes a 0.37% MoM increase in core CPI to make a new YoY high. This doesn’t seem particularly hard to achieve given all the underlying pressures currently in place and given core CPI has averaged 0.5% so far this year while median CPI is above 0.7%. 

The value of investments will fluctuate, which will cause prices to fall as well as rise and you may not get back the original amount you invested. Past performance is not a guide to future performance.

Bond Vigilantes

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