US CPI Elevated but Demand Pull Inflation Is Soft

ANZ expects May US headline CPI to reach 4.2% y/y due to energy costs, but argues that weak consumer demand and subdued pipeline pressures will prevent a persistent inflation spiral.

Key Takeaways

• 1.May headline CPI is forecast to rise to 4.2% y/y (0.5% m/m), driven largely by energy prices rather than broad demand.
• 2.The macroeconomic backdrop, including low savings and weak sentiment, does not support persistent demand-pull inflation.
• 3.Businesses are struggling to pass through input price increases, with output price ratios at multi-year lows.

Table of Contents

• Overview
• Forecast
• Macro backdrop does not support inflation persistence
• Pipeline inflation measures are subdued
• Headline and core inflation forecasts to show energy price-led surge
• Firms are reluctant to raise prices
• More inflation measures to be added to the Fed's policy toolkit
• Fed and inflation
• Inflation expectations
• Warsh's preferred measures signal no acceleration in prices
• Core goods disinflation underway despite rising input costs
• No evidence of demand-pull inflation in services sector
• Uptick in some inflation expectations, but no signs of de-anchoring

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