By Michael Every of Rabobank
Wait and Sea
The US CPI report yesterday did not have the drama of the previous few iterations. Headline was 0.5% m/m as expected, keeping the y/y rate at a 13-year high of 5.4%, and core CPI was 0.3% m/m vs. 0.4% expected and 4.3% y/y. With the over-used argument that the prices of over-used cars are now starting to come down, market opinion was that inflation is now moderating: whether these data captured the surge in rents being seen in the US did not matter. Following the print, US 10-year Treasury yields dropped from 1.38% to 1.31%, closing at 1.33%. One cannot call that a sea-change given that despite the recent move higher in yields the “transitory” meme remained permanent. However, there are moves afoot across the sea and on it that will surely impact the inflation outlook ahead.
Most obviously, in lieu of local shale or Keystone XL, the White House has called on OPEC+ to increase oil output in order to bring energy prices down. Coming just after the IPCC declared the risk of the end of life on earth if drastic climate action is not taken immediately, how this sits with front-and-center Greenery remains unclear. Then again, with funding for fossil fuel projects disappearing globally just as demand picks up (and Russian supply to the EU tails off), and years before a true green transition can actually happen, one wonders what other U-turns will have to be made despite thinking about degrees C (or F).
Also crucial is that in China the evidence is now clear that we are seeing a policy shift and not a...