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Steno Signals #82 – Inflation strikes back and no one is prepared for it

The CPI is accelerating slightly in the US, but the gap between CPI and PCE seems to be growing. With the two directionally always aligned, a re-acceleration will also feed into PCE eventually.
2024-01-14

Happy Sunday and welcome to our flagship editorial on the Coronation day of King Frederik in Copenhagen.

I guess it is somewhat telling for my lack of enthusiasm around the event that I am sitting here spitting out research instead of watching the Crowning.

The US CPI report printed a tad hotter than expected last week, but smack dab at our expectations of a 3.9% YoY level in core terms. This slight reacceleration in trends is probably the worst thing that can happen to the economic consensus for 2024, and the pain trade remains one of higher inflation from here.

Asked just ahead of New Years, only 5-6% of the respondents in the Fund Manager Survey imagined an increase in inflation through 2024. Given the mere uniformity of the disinflation view, we ought to be on our toes through the year. Not least due to some of the forward looking indicators pointing in the other direction (see chart of the week).

Chart of the week: Wage inflation coming back?

The CPI is accelerating slightly in the US, but the gap between CPI and PCE seems to be growing. With the two directionally always aligned, a re-acceleration will also feed into PCE eventually.

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