Monitoring U.S. Reflation Risk In 5 Charts

2025-01-09 15:40:00 ET

Summary

• The concern is that inflation has turned sticky lately, just ahead of expectations for a Trump 2.0 regime shift in government policies that some economists predict could lift pricing pressure.
• Although there’s room for debate on whether this is noise or signal, the gradual but persistent rebound in core CPI (a relatively robust measure of the trend) suggests inflation has stabilized.
• A concerning trend is shown by 5-year inflation expectations via the Treasury market, based on two models.

Inflation is relatively low compared with the post-pandemic surge, when the year-over-year change for the Consumer Price Index (CPI) peaked at 9.0% in June 2022. The current 2.7% pace through through this past November is tame by comparison. The concern is that inflation has turned sticky lately, just ahead of expectations for a Trump 2.0 regime shift in government policies that some economists predict could lift pricing pressure. The bond market, as a result, is increasingly demanding a higher risk premium via higher yields. ...

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