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According to Greg Gibbs, analyst at Amplifying Global FX Capital, while the recent US inflation data may appear to show declining inflation pressure, there is a clear divergence between the closely watched exclusion measures of core inflation and alternative statistical measures that extract outlier price movements.

Key Quotes

“It is unlikely that the Fed will comment on this divergence since it has paid little to no attention to these alternative measures of underlying inflation at previous FOMC meetings.   But the data cautions against expecting the Fed to cut rates any time soon, and suggests there is a risk that the market is underestimating the risk that inflation rises above the Fed’s target over the coming year or so.”

“On the other hand, the FOMC has expressed increasing concern over a falling trend in long term inflation expectations.   It appears to have become more concerned with anchoring these long term inflation expectations; potentially by allowing actual inflation to rise above target for an extended period in the future.”

“The University of Michigan survey of long-run inflation expectations fell in March to revisit its lows, and on a three-month moving average, it made a new low of 2.3%.”

“As such we see little chance that the FOMC will sound any concern over higher inflation risks in the near term.”