Inflation remains a big topic among investors, and the charts below clearly show some of the reasons why, but there are also reasons to suspect inflation pressure could ease later this year.
Inflation is high . . .
A barrage of recent headlines has made it hard not to notice that reported inflation is very high (e.g. US CPI year-on-year change at 8.5%). More importantly for markets, inflation has continued to come in above expectations. The Citigroup Inflation Surprise indices (chart below) measure the degree to which inflation reports come in above or below consensus expectations. The indices for the US, Europe, Emerging Markets, and the global aggregate are all still extremely high relative to historical norms. Europe is by far the most extreme, as it is affected most directly by the war in Ukraine and the resulting impacts on energy prices and many other commodities.
The US labor market is showing mixed signals depending on the data and time period used. Here we review some data that can help identify the divergences and put current conditions in context.
There has been much discussion about the “K-shaped” recovery in the economy following the shock of the initial lockdowns in the second quarter of this year. The “K” is meant to represent a sharp divergence between industries and workers who have been unaffected by or benefited from recent conditions (the top of the “K”), and those who have been hurt (the bottom of the “K”).