US: Inflation to slow further, outright deflation remains unlikely – Wells Fargo

Data released on Tuesday showed the Consumer Price Index (CPI) dropped 0.8% in April. According to analysts at Wells Fargo, inflation will remain soft, but sustained outright deflation remains unlikely.

Key Quotes: 

“As expected, lower oil prices weighed on the headline. The monthly average price of West Texas Intermediate (WTI) slid 40% in April, causing CPI energy prices to decline 10% and shaving 1.3 percentage points off headline CPI. This weakness was partially offset by the 2.6% gain in prices of food at home, which was the largest increase in 45 years. Prices were supported by increased demand, as consumers had to buy more food at grocery stores with nearly all restaurants shut down, but they also got a lift from supply chain disruptions stemming from widespread shutdowns at meat processing facilities.”

“We expect inflation to slow further in coming months, though we do not expect outright deflation. The reported gradual rise in airline traffic and hotel occupancy rates suggests demand is starting to come back online, as the economy begins to re-open and some of these more dramatic price declines should start to stabilize.”