current
Benign US Inflation
US core PCE inflation is expected to slow, remaining relatively benign despite the potential inflationary pressures from tariffs.
Timeframe
near-term
Categories
Subcategories
Impact areas
Detailed Analysis
The report forecasts a slowdown in US core PCE inflation, projecting it to reach 2.4% by late 2025. While acknowledging the potential for tariffs to increase prices, the report suggests that the overall inflationary impact will be relatively modest. "US core PCE inflation should slow to 2.4% by late 2025, higher than our prior forecast of 2.0% but still benign." This relatively benign inflation outlook is attributed to several factors, including continued growth in Chinese exports, inventory normalization in Europe, and cooling shelter inflation. The report also highlights the importance of labor costs in driving services inflation and notes that labor market tightness measures have returned to pre-pandemic levels, suggesting that wage growth should moderate.
Context Signals
Headline inflation and 3-month annualized core inflation are close to target across most major DM economies.
Market rent indicators suggest continued cooling of shelter inflation.
Labor market tightness measures have returned to pre-pandemic levels.
Edge
If the trade war escalates significantly, inflation could rise more than anticipated, potentially forcing the Fed to tighten monetary policy.
Continued low inflation could support consumer spending and contribute to economic growth.
The divergence between market pricing of inflation and the report's forecast suggests a potential investment opportunity in inflation-linked securities.
