US PPI, a measure of inflation at the producer level, rose to 6% year on year in April, the highest since December 2022 and well above market expectations. Energy price inflation also rose sharply since March. The data suggest that the war in the Middle East is beginning to feed into the real economy through higher input costs for companies, raising the risk that these costs may be passed on to consumers.
“While markets are rightly focusing on price pressures in the US, the impact on consumption should not be underestimated. The Fed would prefer to manage this double whammy by keeping inflation expectations anchored and by refraining from rate hikes if the economic outlook deteriorates.”
- US input price inflation accelerated in April, coming in significantly above market expectations.
- Bond yields, particularly short-dated ones, are moving higher owing to higher near-term inflation expectations. Additionally, a recent auction of 30-year USTs was completed at yields close to 5%, for the first time since 2007.
- We think the Fed would like to balance the need to control inflation with any potential fragilities in the economy.
You can now read the full whitepaper at the link below
