Notes from the Desk: US Inflation – A Sigh of Relief
US CPI was bang on the consensus forecast:
- YoY Headline Inflation: 6.5% (previous 7.1%)
- YoY Core Inflation: 5.7% (previous 6%)
Goods prices continue to fall while upward pressure is prevalent in the service sector.
Implications.
- While the Fed will be happy to see CPI heading in the right direction, a tight labour market and strong services inflation ought to keep them on the path to raising rates.
- The question now is whether they raise to the 5-5.25% band or stop at 4.75-5% and if they move in 25 bps or 50 bps increments.
- Equity and credit markets should react positively as the end of the hiking cycle appears to be in sight.
