US: Finding the turning point – ANZ

Research Team at ANZ, suggests that despite the strengthening US labour market – initial jobless claims (at 253k) are at a 42 year low and real labour earnings growth is strengthening – signs of a definitive firming trend in US inflation remain elusive.

Key Quotes

“The lows in US inflation certainly look to be behind us. Annual core CPI inflation, at 2.2%, has been above 2% for five consecutive months and the recent lift in oil prices (if sustained) and the lagged impact of the lower USD will likely contribute to further climbs in headline inflation (currently 0.9% y/y).

Despite all this, the CPI report overnight did not look to provide the smoking gun that some were looking for to posit the Fed is behind the curve, with 10 year Treasury yields still parked below 1.80% and with current market odds for a June rate hike at just 17%, and hike odds at just over 50% by the end of the year. If views on the inflation outlook harden and yields ‘snap’ higher, brace for market fallout as asset values are ‘reassessed’. But an immediate catalyst still looks hard to find.”