Wells Fargo: Inflation Inertia Will Be Difficult To Break

Wells Fargo says that December's M/M slowdown in CPI "should not detract from the absolute size which shows prices continue to rise at a menacing pace", both above the Fed's goal and "highly visible to consumers whose earnings have not kept pace with prices this past year".

• In the details, they see somewhat smaller contributions from used cars for "the next couple of months at least", and "would not be surprised" to see outright declines in travel sector prices in January.
• But overall, Wells Fargo sees services inflation trending higher in 2022, "reflecting the lagged pass-through of higher prices for physical inputs and labor."
• They see the increasing breadth of price gains as giving inflation "inertia that will be difficult to break", with more than 2/3 of CPI categories up 3+% in the past year.
• They expect CPI to remain close to 7% Y/Y in the next few months, falling further on on base comparisons, but "still likely to run at a burdensome pace through the year", with core CPI still likely to be around 4% by end-year.