February's CPI report on Thursday is expected to be the first of three readings either close to or above 8%, based on market-implied levels of fixings.
A combination of unrelated factors is raising the likelihood that higher-than-normal U.S. inflation could turn durable, lasting anywhere from a few years to a full decade, according to investors bracing for next week’s latest update on price gains.Traders expect Thursday this coming week to bring the first in a string of annual consumer price index headline figures close to or above 8%. Derivative-like instruments known as “fixings” imply the year-over-year rate for February is likely to be 7.
Russia’s attack on Ukraine in the past week has shifted the calculus, by putting a much longer stretch of high U.S. inflation firmly within the realm of possibilities. The war is creating havoc in oil markets, roiling commodity prices, and trickling down to American consumers at a time when the inflation rate is already at a 40-year high of 7.5%.
Traders, policy makers and economists alike are all counting on inflation to trail off this year, while persisting above the Fed’s 2% target. However, many have turned out to be wrong for months and inflation has yet to show signs of peaking. “ “It’s easier to imagine us getting into stagflationary scenario than it was pre-Russia and Ukraine.””
“It’s easier to imagine us getting into a stagflationary scenario than it was pre-Russia and Ukraine, but that’s not my base case,” Adams said via phone. “My base case is that we see high inflation over the next few months, before CPI falls off to 4% year-over-year in the fourth quarter as the pandemic fades, labor force participation rises, and shortages ease. We could see disinflationary effects play out.
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