Commentary
The U.S. CPI data released last week met expectations completely, whether overall or core, year-over-year (YoY), or month-over-month (MoM). Expectations are not anything important but numbers submitted by economists. What matters more is the trend. While the overall numbers are falling thanks to subdued energy prices, the core ones are somehow mixed. The latest MoM core inflation accelerated from 0.2 percent to 0.3 percent, despite the YoY number falling, owing probably to a rising base a year ago. Such base effect will last until March.
Even assuming a naïve linear downtrend of YoY core inflation from September 2022, it will not return to 2 percent until the year’s end. The latest rebounded MoM core number suggests two things: First, so far inflation downtrend is still driven by the energy bear market. Unless energy prices keep plummeting, there will not be too much downward driving force in the coming months. Second, there is still fundamental, persistent upward pressure behind, which is likely due to the strong real activity. The latter is, in turn, a result of previous monetary accommodations….