US: CPI to run over 4% on a year-ago basis until the first quarter of 2022 – Wells Fargo

Data released on Thursday showed the Consumer Price Index in the US rose 0.6% in May and 5.0% year-over-year. Analysts at Wells Fargo, point out a handful of categories most closely tied to the reopening of the service sector and supply bottlenecks once again accounted for an outsized share of the rise. 

Key Quotes: 

“Consumer price inflation continued to tear higher in May, with prices up 0.6%. Over the past three months, prices are up at a 8.5% annualized rate and illustrate that the jump in the year-ago rate of inflation is being driven by more than easy base comparisons after last spring's lockdowns. Headline CPI is up 5.0% over the past year, while core inflation, which excludes what is usually the most volatile components—food and energy, is up 3.8%. That's the largest one-year gain in 28 years.”

“But similar to April, much of May's increase in prices can be traced to a handful of small components currently at the center of reopenings and supply shortages.”

“We expect headline CPI to run over 4% on a year-ago basis between now and the first quarter of next year. Tougher base comparisons after this spring's leap along with easing bottlenecks as demand cools and supply chains adjust should lead to a slowdown beginning in the second quarter of next year.”

“The recent onslaught of consumer price inflation and strengthening wage gains will likely push the FOMC to “talk about talking about” tapering at its meeting next week. But that doesn't mean plans to scale back asset purchases are imminent. Given the unique factors currently driving up inflation, we believe the Fed still wants a clearer view on how the dust will settle—or will not settle—on inflation later this year, and see the recovery in payrolls move further along.”

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