Wells Fargo: "Another Reopening Fueled Surge in CPI and Then Some"

In today's U.S. June CPI release, Wells Fargo sees "increasing evidence that inflation is broadening out beyond categories at the center of the reopening." They point out "prices have risen at an eye-popping 9.7% annualized pace the past three months as businesses are still struggling to meet surging demand".

• They expect food to "remain a major driver of inflation over the next few months and to offset some of the easing in autos and travel services". And "the upward draft from housing has yet to be realized and will prove more durable. The potential for an even larger boost from shelter comes with rent prices also starting to turn higher."
• But that being said, they don't expect much impact on Fed policy...yet: "Outsized gains tied to relatively small components continue to support the view that the current degree of inflation is transitory, but with price pressures broadening out, questions continue to swirl around when and to what extent inflation will eventually settle down. Most FOMC officials already saw upside risk to their inflation forecasts, but most also viewed uncertainty as historically high. Given the uniqueness of the current period, the dust is far from settled, and most officials seem content to wait for more information on inflation (and the labor market) before feeling ready to taper asset purchases."
• The structural outlook for inflation has changed, they say: "Along with consumer inflation expectations having turned around, the disinflationary forces of the past decade fading and the Fed's greater tolerance of inflation under its new framework, the underlying trend in inflation has moved up in our view."

Source: Wells Fargo