In his CPI post-mortem note, Deutsche Bank credit strategist Jim Reid cynically recaps the market action this morning, writing that "after another huge US inflation print and big beat relative to expectations (which saw core CPI rise the most since Nov 1991), the market has already looked through the report and looked at some of the temporary “distortions” as tempering the strength."
Indeed, as we showed earlier, used cars were up +10.5% mom which surprised the market after surveys from the likes of Manheim had pointed to a recent mean reversion of prices. Sure enough, echoing BofA's conclusion that used car prices will now detract from CPI in the near term, Reid notes that "at some point soon it will likely do so in the CPI."
And while it is certainly true that at some point soaring inflation prints will reverse, at this point Reid asks two uncomfortable questions:
- first, whether this current bout of inflation is temporary or not, how did consensus once again (and for the 3rd month in a row) completely miss the scorching hot inflation print?
- second, with inflation forecasts creeping ever higher, at what point will the surge in 2022 inflation render the "transitory" debate moot?
Regarding the latter, in his Chart of the Day, the DB strategist shows the the evolution of consensus forecasts on Bloomberg for 2021 and 2022 FY YoY inflation...
... and says that "as a result of continued beats, expectations for 2021’s FY CPI figure has started to climb and interestingly 2022 has followed. If that is correct it shows it can’t all be transitory, as if you believe it was, you might actually believe that base effects would mean that 2022 FY inflation growth should actually be lower than you’d previously thought."