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Mainly Bad News From China Lockdowns For US Inflation: BofA

US OUTLOOK/OPINION
EM BulletFixed IncomeBulletMarketsEmerging MarketsForeign Exchange

BofA writes that the Chinese COVID lockdowns presents some good news but mainly bad news for US inflation and economic growth.

  • The main good news is that weaker Chinese demand has kept a lid on oil prices: BofA estimates by a little over 10%. Additionally, the US is not particularly dependent on Chinese consumer/business demand (accounting for less than 1% of Chinese GDP).
  • But there is plenty of bad news, mainly from supply-chain disruptions and the resulting inflation. BofA thinks it will take until at least the May CPI data for the full effect of China lockdowns - and they see a "short burst of upward pressure on goods prices.
  • That may not impact monetary policy though, with the Fed on autopilot w 50bp hikes in the next 2 meetings. By September (when BofA sees a downshift to a 25bp hiking pace), "any sustained impact of the China lockdowns on US inflation should be clear."

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BofA writes that the Chinese COVID lockdowns presents some good news but mainly bad news for US inflation and economic growth.

  • The main good news is that weaker Chinese demand has kept a lid on oil prices: BofA estimates by a little over 10%. Additionally, the US is not particularly dependent on Chinese consumer/business demand (accounting for less than 1% of Chinese GDP).
  • But there is plenty of bad news, mainly from supply-chain disruptions and the resulting inflation. BofA thinks it will take until at least the May CPI data for the full effect of China lockdowns - and they see a "short burst of upward pressure on goods prices.
  • That may not impact monetary policy though, with the Fed on autopilot w 50bp hikes in the next 2 meetings. By September (when BofA sees a downshift to a 25bp hiking pace), "any sustained impact of the China lockdowns on US inflation should be clear."