Sunday , May 16 2021

CPI Surprise

Summary:
The CPI came in slightly above Bloomberg consensus (2.6% vs 2.5%), and above the WSJ April survey consensus (shown below). Figure 1: CPI All urban (blue), Bloomberg consensus as of 4/12 (pink inverted triangle), WSJ April survey mean implied by forecasted inflation rate (teal square), and 2016-19 trend line (red), all on log scale. Source: BLS via FRED, Bloomberg, WSJ April survey, and author’s calculations. In other words, the March release is above the path implied by the WSJ survey that had only been taken a week or so earlier. That being said, there is barely a blip in markets showing an increase in inflation expectations. Figure 2. Five year inflation breakeven calculated as five year Treasury yield minus five year TIPS yield (blue), five year breakeven adjusted by term premium

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The CPI came in slightly above Bloomberg consensus (2.6% vs 2.5%), and above the WSJ April survey consensus (shown below).

CPI Surprise

Figure 1: CPI All urban (blue), Bloomberg consensus as of 4/12 (pink inverted triangle), WSJ April survey mean implied by forecasted inflation rate (teal square), and 2016-19 trend line (red), all on log scale. Source: BLS via FRED, Bloomberg, WSJ April survey, and author’s calculations.

In other words, the March release is above the path implied by the WSJ survey that had only been taken a week or so earlier.

That being said, there is barely a blip in markets showing an increase in inflation expectations.

CPI Surprise

Figure 2. Five year inflation breakeven calculated as five year Treasury yield minus five year TIPS yield (blue), five year breakeven adjusted by term premium and liquidity premium per DKW, all in %. Red dashed line at 4/13, CPI release date. Source: FRB via FRED, KWW following D’amico, Kim and Wei (DKW), and author’s calculations.

Torsten Slok (Apollo Global Management) writes today:

Inflation for March came in at 2.6%, and the most likely scenario is that inflation in the second half of this year will move below 2% again. That is also what the consensus expects.

But there is a 25% probability that we will see a substantial overshoot where inflation will be above 2.2% for the rest of 2021.

One particularly troubling aspect of the inflation outlook is the fact that a very high number of companies are saying that they are planning to raise prices of the products they are selling

Menzie Chinn
He is Professor of Public Affairs and Economics at the University of Wisconsin, Madison

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