The current environment has led many investors to reduce their expectations for future returns from traditional assets such as developed market stocks and bonds. Indeed, it raises the question of whether any attractively priced assets remain. That is, what is still “cheap”?
An improving growth picture gives fodder to the Fed to increase rates this year – possibly several times. It should also be a signal for capital preservation and liquidity investors.
When looking past the noise, we believe the data have continued to confirm our forecast for 2.2% core inflation in 2017.
How can the BOE justify doing nothing – holding interest rates steady and offering no strong view on the direction of monetary policy – while also increasing its growth forecasts, at a time when it already expects inflation to overshoot the target for the next three years?
We see little probability of high core inflation rates in the eurozone, but instead a gradual increase toward the ECB target of just below 2% over the next few years.
CPI jumps. Trump may accelerate the trend.
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.
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.