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Deutsche Sees Upside Core CPI Risks

US OUTLOOK/OPINION

Deutsche Bank notes that the continued rise in 5-yr inflation breakevens (2.72% on Monday, the highest level since 2006) despite Friday's weak jobs report can be partly explained by anticipation ahead of week's upcoming April CPI and PPI reports, which "will certainly be well scrutinized for signals that the economic data could push the Fed to talk about tapering sooner rather than later."

  • For this month's CPI report out Wednesday, Deutsche sees headline CPI of +0.30% unrounded / core +0.39%, with PPI headline +0.2%/ core +0.3%.
  • These forecasts imply they are looking for an above-consensus core CPI figure and in-line on PPI. Current BBG consensus for PPI core is +0.4%, with CPI core +0.3%.
  • They note that the March CPI report was "one-sided" with "the vast majority of surprises at the component level" to the upside, which normally would persuade Deutsche to moderate its expectations lower, but they note "those upside surprises seemed to occur in categories related to reopening, particularly where demand may be coming back somewhat faster than supply" so may persist.


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