US: Inflation is picking up now – Wells Fargo

Data released on Tuesday, showed annual inflation in the US climbed to the highest level in years. While low base comparisons from last year's shutdowns helped drive the year-ago rate up to 2.6%, inflation has strengthened more recently, argue analysts at Wells Fargo. 

Key Quotes: 

“Inflation heated up in March, with the Consumer Price Index (CPI) rising 0.6%. The year-over-year rate rose to 2.6% from 1.7% in February, helped by a low base comparison after a 0.3% monthly drop last March. The easy base comparisons from last year's shutdown will continue over the next two months, including an even easier comp next month after the CPI fell 0.7% last April. But inflation is picking up now. Over the past three months, the CPI has increased at an annualized rate of 5.0%.”

“In short, the pickup in inflation is attributable to more than just last spring's low base comparisons. The economy's full reopening at a time when households are flush with cash has created a wave of demand. Across the supply chain, there is a struggle to keep up, which is giving a wide range of businesses something they have not seen in more than a decade: pricing power.”

“The Fed has made clear that it wants to see a sustainable pickup in inflation, and not a temporary increase. That evaluation will be difficult to make until late this year, after supply disruptions ease and the initial burst of activity as the economy fully reopens subsides. That will keep the Fed in wait-and-see mode for months to come. Our own view is that inflation is likely to strengthen further in the months to come, leading core CPI to reach a 2.7% year-over-year rate by the first quarter of 2022, but there remains a heightened degree of uncertainty around the outlook.”