Inflation will Cyclically Fall but is Structurally High
One of the interesting dynamics in markets right now is the wide ranging views on where inflation is going over the next 6-12 months. My overarching view on inflation has been that it is lower than the recent CPI readings would suggest, but will settle higher than both the Fed and the market currently thinks. At a baseline level, 5% wage growth is not consistent with inflation at the Fed’s 2% target, even if a lot of the excesses on the goods and commodity side have/will come out of the recent price index readings. Before we delve more into the way I am thinking about trend inflation in this different economic cycle, let’s look at what the market is currently assuming.