US: Market consensus forecast for CPI too low - ING

James Knightley, Senior Economist at ING, explained after today’s CPI data that market consensus CPI for 2018 is too low and they see upward pressures.

Key Quotes:

“Headline US inflation rose 0.2% and core was up 0.1% month-on-month in April, both a tenth of a percentage point below market expectations.”

“The main reason for the "miss" was autos, with new car prices down 0.5% and used prices down 1.6%MoM.”

“We see further upward price pressures developing and predict CPI approaching 3%YoY and core CPI rising to 2.5% by summer as energy prices, unwinding of mobile cell phone data plan charge effects and rising import prices feed through.”

“We think the market consensus forecast for CPI this year is too low and that in an environment of robust economic activity fuelled by tax cuts and a tight jobs market there is the risk of a market re-appraisal.”

“We look for three further interest rate rises from the Fed this year, running at one every quarter, with US 10Y Treasury yields moving up to a 3.25-3.50% range in 2H18.”