The sell-off in risky assets in early October promptly led to expectations of a more dovish Fed.
CPI inflation accelerated again in March. As we see it, the important development is that inflation has broadened out.
CPI and PPI monthly inflation kicked up a bit with February readings and could do so again when March results are released.
Inflation trends are a mixed bag at present.
Twelve month rates of change for both CPI and PPI have been trending down over the past fifteen months, and seem to be less of an immediate threat. But, the Core CPI seems to be in an uptrend.
Inflation prospects are especially unclear. While many inflation gauges seem to be slowing, the threat of an inflation flare-up remains.
Looking ahead, CPI twelve month rate of inflation is likely to be in the +2% area for the first half of 2007.
Inflation expectations seem to be on the rise.
CPI on a twelve month basis still expected to decelerate over the next three months. The final 3 months of the year, however could be another story, with CPI twelve month inflation accelerating.
Major reason for lower inflation forecasts is expectation of slowing economy (recession?) in 2006.