US CPI: The trend in inflation remains tame - Wells Fargo

Inflation headlines came in above expectations for March while the Core Index rose below consensus. Analysts at Well Fargo, explained that CPI picked up in March as food and gas prices are rising once again at the same time, Core CPI softened a touch. They point out the trend in inflation is likely to remain within the Federal Reserve’s comfort zone.

Key Quotes: 

“Core inflation came in a touch softer than expected with the index rising 0.1% (0.148% before rounding). Core goods prices fell 0.2% for a second consecutive month, due, at least in part, to the BLS beginning a new collection procedure that uses actual transactions rather than field surveyors for a department store.”

“Overall consumer prices rose 0.4% in March, which was the largest monthly gain in more than a year. A 6.5% jump in gasoline prices was a significant culprit of the increase.”

“We see little risk of inflation moving meaningfully above 2% this year. Slowing growth in the United States and abroad has eased input cost pressures. At the same time, inflation expectations—both short- and longterm—have remained stubbornly low. While an elevated share of businesses report raising prices, low inflation expectations, stronger productivity growth and high margins should limit the magnitude of price hikes.”

“We now look for core CPI inflation to top out over the forecast horizon at 2.2% versus 2.3% previously.”

“The more cautious tenor from the FOMC lately along with more modest inflation expectations leads us to no longer expect the FOMC to raise the fed funds rate this year. But inflation remains close enough to the Fed’s goal that a rate cut this year—as is currently priced in by markets—looks premature in our view.”