Inflation Watch: A bottom above 2%? 10 charts on USD inflation
Welcome to our inflation watch ahead of the all-important US CPI report on Wednesday.
Before showing our charts and models, we’d like to present you with our key take-aways up front:
1) Headline/energy inflation will continue to accelerate and likely to a higher degree than priced in
2) Core inflation will wane, but even services prices show signs of bottoming around New Years. Car prices will drag down core MARKEDLY in the coming months
3) Most of our indicators point to at least a local bottom clearly above 2% in US inflation, which will prolong the high for longer vibes
4) We have earlier been more convinced of the USD disinflation, but the forward-looking evidence seems to be changing towards risk/reward favoring a local bottom clearly above 2% into Q1-2024
5) The Fed will likely see this cocktail of disinflation in core and reacceleration in headline as sufficient to skip/pause and allow the market to do the dirty work, which looks like an obvious curve steepener cocktail to us
Let’s look at the evidence behind the key takeaways above.
The Fed is likely to conclude that the cocktail of rising headline inflation and dropping core inflation is enough for a skip, but by refusing to act on emerging renewed price pressures, they will likely let the market do the dirty work!
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