Inflation exceeds expectations (again)
US consumer price inflation was expected to come in at 4.7 per cent over the year due to the base effect.
But again, inflation exceeded expectations in rising to 5 per cent.
The core measures came in at 3.8 per cent, versus 3.5 per cent expected.
However, inflation expectations have been rolling over lately, and markets were unflustered.
US Treasury yields fell after the inflation release to be down on the day, with the 10-year yield falling back to 1.489 per cent...2 per cent suddenly looks miles away again.
The Aussie 10-year is also well under 1½ per cent.
Passing through...?
The big question is whether the surge of inflation is transitory.
Markets are leaning towards 'yes'.
There is evidently an awful lot of fiscal and monetary stimulus in the U.S. economy right now.
Over the medium term, however, the deflationary forces such as higher levels of debt, demographics, and the globally increasing labour supply are expected to take hold again.
There is some debate in Australia about whether the economy is rebounding so powerfully that the Reserve Bank could hike interest rates a couple of times before "2024 at the earliest".
