Barbara Reinhard, CFA
Senior Managing Director, Chief Investment Officer, Multi-Asset Strategies and Solutions
March’s inflation print showed that the disinflation trend remains quite bumpy: Headline CPI came in at 0.4% on a monthly basis (versus an expected 0.3%) and 3.5% on a yearly basis (expected 3.4%), while core CPI came in at 0.4% MoM (expected 0.3%) and 3.8% YoY (expected 3.7%). Gasoline and shelter accounted for over half of the increase in last month’s CPI.
With this hot inflation print, consensus now seems to be that the timeline for the much-anticipated Fed rate cut will be pushed out again. The CME’s FedWatch Tool shows that the markets are now only expecting two rate cuts instead of three this year, and that the first rate cut will now be in September, not June.
Even though inflation’s “last mile” has proven to be quite stubborn, it’s important to zoom out and focus on the overall disinflationary trend, which remains downwards. We also monitor Truflation, which attempts to model inflation in real-time by aggregating millions of data points from various sources such as Zillow, Walmart, JD Power, etc. As of April 10, Truflation was showing a year-on-year U.S. inflation rate of 1.78%. With a 0.97 correlation with CPI since 2012, it remains to be seen if CPI will track with Truflation, but we believe that inflation will continue to trend lower over the medium term.
Maverick Lin contributed to this article.