US inflation

US CPI remains very elevated. Headline inflation is set only to worsen, as recent energy prices feed through.

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The data is elevated no matter what frame you use…

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…and the month on month data does not show any deceleration, just yet. In other words, no reason to assume that inflation is about to slow, over the next few months, and if anything, reason to expect acceleration.

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It appears expectations remains well anchored, however, and as such bond yields, although moving modestly higher, do not look poised to double, as per the below regression line(s). The bond market continues to look through current inflation, on the belief that expected inflation will continue to be much lower (2-3%).

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In our view, reals (TIPS) do remain too low, given the output gap, and another 1% to TIPS would be very harmful to pockets of the market that are trying to fire (the secular growth narrative stocks/long duration stocks).

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