Headline inflation fading, however underlying value pressures persis
Headline inflation fell to five.0% in March from 6.0% in February, under market expectations and clocking the weakest studying in practically two years. Inflation has now declined for 9 months in a row, and is sort of half its mid-2022 peak. That stated, core inflation is proving stickier, and ticked as much as 5.6% in March.
The solely method is down
Our Consensus is for inflation to proceed to ease over the course of this yr amid a slowing economic system and more durable base impact, however to stay above the Fed’s 2.0% goal this yr and next. The discrepancy amongst panelists is giant although; This autumn 2023 inflation forecasts among the many 30+ analysts we ballot vary from 2.0% to 4.4% for instance.
Fed practically accomplished
With inflation weakening greater than anticipated and up to date banking turmoil prone to tighten monetary circumstances forward, the Fed needs to be near the top of its tightening cycle. Our Consensus is for simply one more 25-basis point hike in Q2. The latest launch of the minutes of the Central Bank’s March assembly confirms this view; board members already mentioned pausing tightening final month.
The drooping greenback
The greenback has misplaced floor to this point this yr, and now trades at 1.10 per EUR in comparison with 1.07 at first of 2023—a far cry from the below-parity readings noticed in This autumn final yr. Going ahead, dipping inflation and the seemingly finish of the Fed’s tightening cycle will preserve strain on the greenback, which we at present forecast to finish the yr at round its present degree.
