U.S. CPI came in line with expectations at 2.7% YoY. The headline number is telling us inflation is not going down, is stickier than expected and nothing is deflating. At best we can hope for disinflation (smaller growth in prices) in the services sector. OPEC announced deeper cuts in oil production today, which means we may see a spike in oil prices in the coming months. Shelter, the biggest complement in core CPI went slightly up, which is concerning. Despite all this, the market reaction to the report when it comes to interest rates has been positive: the odds for a 25 bps cut next week are now at 94%. Today, the Swiss National Bank cut rates by 50 bps and the ECB is expected to cut rates as well. China is expected to announce further economic stimuli, including an expansion of its budget deficit, which is inflationary. Some major tailwinds are supporting higher prices.
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