Notes from the Desk – US CPI – Still Too Hot
Today’s CPI number disappointed those looking for signs that the Federal Reserve (Fed) could ease off the brakes.
- Annual inflation came in at 8.3% (8.1% expected) as increases in food prices offset the drop in gasoline prices
- Core inflation came in at 6.3% (6.1% expected), driven by shelter and medical care costs
Today’s data reinforces worries that inflation is going to be ‘sticky.’
- The Fed could hike by at least 75 bps next week, with 100 bps also on the table.
- US 2y interest rates are ~ 15 bps higher post the print, after trading 8 bps lower earlier this morning.
- We anticipate that this will put a dent in the recent enthusiasm in equities, but don’t expect Canadian investment grade credit spreads to be materially impacted.