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RBC notes that the "firming in inflation....>

US VIEW
US VIEW: RBC notes that the "firming in inflation continues unabated. Headline
PCE now sits right at the Fed's target and we expect that will be the floor over
the balance of the year. And in between now and then, our expectation is it will
push through 2.5% (with CPI easily hitting 3%). Survey based measures of
inflation are also pointing higher. The Chicago PMI out today was the latest
regional measure to say the same thing: prices paid are rising. This all
suggests the Fed's narrative on inflation is likely due for a hawkish upgrade.
From our lens the near-term direction on inflation seems all but set. Having
said that, we don't mischaracterize this broad idea. Yes, inflation will be on
the rise in the near-term but based in large part on the gasoline futures strip,
at present, it suggests PCE inflation will drift back down toward 1.5% as we
roll into 2019. All with core measures of inflation holding around 2% (and even
a touch lower than that as we get into next year) it will give the Fed an
opportunity to use their favorite phrase to explain away a deviation in
inflation from target: it is simply "transitory". Look for the Fed to insert
that wording in the coming months."
MNI London Bureau | +44 0203-865-3809 | anthony.barton@marketnews.com
MNI London Bureau | +44 0203-865-3809 | anthony.barton@marketnews.com

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