A just-published report updated both the short-term and 1-2 year outlook for U.S. inflation. We concluded that the consensus view, encouraged by hyper-dovish central banks, is that this year’s pop in core inflation will peter out and the low inflation backdrop will continue for a long time to come.
Rather, we expect that core CPI inflation will be at or above 2.5% year-on-year on a durable basis by the end of 2022. Upward price pressures are building in the pipeline, and there will be a catch-up phase in those economic areas that were crushed during the pandemic. Moreover, the economic outlook is extremely upbeat and economic slack is likely to diminish rapidly, paving the way for positive upside inflation surprises. Stay tuned.