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Wells Fargo: CPI Release Won't Shift Fed's Tone

US OUTLOOK/OPINION
BulletMarketsFixed IncomeForeign Exchange

Wells Fargo still eyes March's 6.5% Y/Y core CPI reading as "likely" the "high watermark for core inflation this year", so even with April's above-expected release, "glass half-full optimists can point to the increasing likelihood that inflation has at least stopped getting worse." But that said, they doubt that will be enough for the Fed to shift its tone, and see further 50bp hikes in the pipeline.

  • "Price growth on a sequential basis is also likely to remain much too high as far as the Fed is concerned, running a little over 5% annualized in Q3."
  • In the April release, Wells Fargo notes the "softening trend in goods prices was not enough to overcome the upward trend in services". For core, they note strong vehicle price inflation but outside of that, goods inflation "largely slowed on a sequential basis".
  • Core services, in contrast, "continue to heat up", with pandemic "reopening" categories posting strong gains. And shelter prices have yet to peak, in Wells' view.
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Wells Fargo still eyes March's 6.5% Y/Y core CPI reading as "likely" the "high watermark for core inflation this year", so even with April's above-expected release, "glass half-full optimists can point to the increasing likelihood that inflation has at least stopped getting worse." But that said, they doubt that will be enough for the Fed to shift its tone, and see further 50bp hikes in the pipeline.

  • "Price growth on a sequential basis is also likely to remain much too high as far as the Fed is concerned, running a little over 5% annualized in Q3."
  • In the April release, Wells Fargo notes the "softening trend in goods prices was not enough to overcome the upward trend in services". For core, they note strong vehicle price inflation but outside of that, goods inflation "largely slowed on a sequential basis".
  • Core services, in contrast, "continue to heat up", with pandemic "reopening" categories posting strong gains. And shelter prices have yet to peak, in Wells' view.