Inflationen kryber opad, især i USA, men Nordea ser samtidig tegn på, at vi får en løn-inflation fra foråret.
Wage inflation is coming!
The labour market is probably running hotter than you think and global key figures are now in TIGHTENING territory. Perhaps the Fed’s dual mandate will be fulfilled already by early 2022? The direct transfers of Biden-nomics are highly inflationary.
US inflation – neither too hot nor too cold, but for how long?
US inflation swaps look priced to perfection. They show an initial overshoot to 2.7% and CPI inflation rates of 2.3%-2.7% over the next decade. If we ignore energy and food prices, then these swaps show core CPI inflation outcomes over the next decade. And with US core CPI figures typically 0.3 percentage points above their core PCE counterparts, it seems as if Fed will manage to keep US core at 2.0%-2.4% in the long run – so, priced for perfection, neither too high, nor too low.
US inflation swaps – priced to perfection?
In our eyes, this probably means that a lot of “good” news has been priced in terms of CPI outcomes. We still believe in (generally) higher-than-expected US CPI outcomes, as for instance economists are likely to miss “unforeseen” spill-overs to core inflation from higher gasoline prices, but this narrative is about to really be tested in coming months.
Core inflation likely to top expectations, in our view
On the one hand, the Fed has said it will tolerate overshooting, but with inflation priced this “lofty”, the market is likely to add tightening bets should inflation rates top expectations.
On the other hand, if inflation rates disappoint, then the demand for commodities as an inflation protection may wane – possibly unwinding various reflation trades. We earlier speculated in a doomsday loop – a loop where inflation worries boost demand for commodities, which fuels further inflation fears… if you buy into this, then CPI inflation setbacks could prompt unwinds of this doomsday loop.
Will the commodity-inflation doomsday loop unwind?
We also noticed how the labour market is already showing signs of (over)heating. It sounds awkward to say so in the midst of a Pandemic, but NFIB respondents hint that job openings are the hardest to fill ever (in the survey history). Maybe WAGE inflation is also coming? The direct transfers of Biden-nomics also speak in favour of compensation hikes, as it puts workers in a better spot negotiation-wise. In such case the Fed may fulfil its dual mandate much sooner than you think!
Wage inflation is coming!
Perhaps this means that the outlook for broader risk assets has also become somewhat less benign – the S&P500 has traded higher, hand in hand with US break-evens since last summer, but at some point you would think equity investors might start to worry about higher real rates (in May?).
