Something for your Espresso: Another input cost SHOCKER upcoming?
Good Morning from Europe!
The US inflation report made for hawkish reading and our nowcasts were mostly in line with the actual developments. We have been banging the drum on a resurgence in USD inflation trends for a while and we are especially scared of rising input costs spilling over to a cyclical re-acceleration of goods inflation into the spring at the worst possible timing for the Fed.
If we look at our input cost monitor, we are a bit puzzled that the consensus for input costs is around 0.3% MoM again, which is out of whack with our observed price trends in the input basket over the course of March.
Broad commodities moved sharply up through March and the lagged spill-overs from freight rates and shipping delays will likely be substantial as well.
Our model hints at a 0.6% MoM PPI (final demand) print later, which will likely prove to be another shocker for rates markets.
Chart 1: Another hawkish PPI surprise?
On the back of the hawkish surprise in the CPI, we find PPI consensus amazingly low ahead of the release later. The resurgence of USD inflation is likely going to impact the reaction function of the ECB even if the outlook is diverging fast.
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