The factors driving the participation rate higher since November are somewhat different from those earlier in 2016.
When looking past the noise, we believe the data have continued to confirm our forecast for 2.2% core inflation in 2017.
CPI jumps. Trump may accelerate the trend.
We wonder if market participants – like business and consumer survey respondents – may be too focused on Trump’s pro-growth policies and not focused enough on the more controversial aspects of his agenda.
We think the recent modest deceleration in core inflation is an artifact of residual seasonality, holiday discounting and some deceleration in medical costs that may prove temporary.
We believe recent developments in the labor market may actually indicate declining and more limited slack.
Today’s CPI release was a bit of a mixed bag, but overall it doesn’t change our view that headline year-over-year inflation should accelerate toward 2.0%–2.5% over the coming year.
While inflation may be harder to find given the globalization of goods over the past 20 years, along with recent dollar and commodity shocks, it’s there if you know where to look.
Underlying components of the CPI suggest U.S. inflation is gradually moving toward the Fed’s inflation target.