BNP: Inflation Deceleration Will Be Sticky

BNP saw April's CPI report confirming that while peak inflation has passed, the deceleration "is likely to be sticky", with the service-driven upside surprise pointing "towards continued near-term strength and inflation prospects being increasingly susceptible to tight labor conditions.".

• Of the rise in rents, BNP observes: "Ironically, as the Fed raises rates, more potential buyers will likely be diverted into the rental market, thereby exacerbating the shelter inflation trend. In our view, rent pressures may not abate until the unemployment rate starts to rise (presumably around the next recession)."
• That said, they also see the drop in apparel prices as an "early indication" of potential disinflationary impulses due to the recent appreciation of the dollar.
• They continue to see 50bp Fed hikes at the next 3 meetings, with a terminal 3.00-3.25% rate by Feb 2023.