In view of analysts at Amplifying Global FX Capital, recent US CPI data have been below expected, including core measures as the PCE deflator core (excluding food and energy) fell from 1.8%y/y in Feb to 1.5%y/y in Apr while the CPI core fell from 2.3%y/y in Jan to 1.9%y/y in April.

Key Quotes

“Alternative core measures concur.  The Cleveland Fed’s 16%trimmed mean CPI fell from 2.3%y/y in Jan to 2.0% in April, and the chart below shows that this reflected sharply lower monthly outcomes rather than base effects.”

“The Dallas Fed’s PCE trimmed mean showed a fall in the 12mth annualized rate from 1.9%y/y in Feb to 1.5% in April.”

“It does appear that underlying inflation has moved down significantly in recent months giving the Fed again a sizeable gap from its 2% inflation target. As such it appears sustained inflation remains elusive.”

“It will be interesting to see the May CPI data that comes out on the same morning as the FOMC meeting next week.”

“Lower inflation expectations

Market-based measures of long term USA inflation expectations have fallen relatively sharply in the last month. The University of Michigan survey of long-term inflation expectations has been stable by the Fed’s standards, but is near the record lows of 2.4% in the last two months.

The New York Fed’s survey of three year-ahead inflation expectations is not as weak, it was 2.91% in Apr, up from the lows around 2.5% in Q3 last year, down from the recent peak of 2.98% in Feb.

The lower inflation outcomes, somewhat lower commodity prices, and no apparent lift in wages growth may be contributing to lower US yields.”