Analysts at Scotiabank offer a sneak peek at what to expect from Wednesday’s US CPI release, with any rise likely to be transitory.
“Base effects on their own would drive inflation from 2.6% to 3.3% y/y and core from 1.6% to 2.1%.”
“Supply chain pressures and seasonal influences on month-over-month price changes account for the rest.”
“Such peaks-and the next month could see headline cross 4%-may be transitory, but we should be careful and not go too far with that view. Supply chains are badly damaged by the pandemic and, before that, the prior US administration’s trade wars. Some capacity in the economy may never come back if behavior has been fundamentally altered away from demand for some types of activities toward other types that are unprepared. Some unemployed labor may be structural in nature. Demand for semiconductors and other components is so strong that various industry representatives suggest shortages could persist for years. “
“The Fed seems to have much greater conviction that inflation will fall back than is merited by its track record at forecasting inflation.”