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Scotia Sees Covid-Led CPI; Wells Fargo Eyes Goods-->Services

US OUTLOOK/OPINION

Scotiabank is roughly in line with consensus on October CPI expectations (+0.5% headline, +0.4% M/M core), though see more upside than downside risk to those forecasts.

  • They see the recent phenomenon of inflation volatility as fairly straightforward: "ebbs and flows in recent month-over-month rates of inflation—both headline and core—are highly correlated with ebbs and flows in COVID-19 cases."
  • As such, with cases sliding, prices are set to re-accelerate in October vs September. Though there are other significant drivers of inflation forecasting uncertainty, including the shutdown of spare capacity, and high wage pressures.

Wells Fargo is in line with consensus on core at +0.4% and headline at +0.6%.

  • Their main question is whether price growth in certain sectors (eg vehicles) offset a broadening out of inflation in other areas (eg housing).
  • "We expect goods inflation to hand the baton to services over the course of the next year", though in the near term, bottlenecks will keep upward pressure on inflation.
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