Wells Fargo sees headline consumer prices at 4.6% and core consumer prices at 3.4% in Q2 2021, both forecasts are seen rising into Q4
April's blowout increase in inflation alone lifts the near-term outlook for year-over-year inflation, but we have further raised our outlook as the solid demand environment allows surging input costs to largely be passed on.
Our above-consensus call on inflation looks for core PCE inflation to average 2.8% this year and slow only to 2.5% in 2022
Supply constraints and the reopening of the service sector collided in April to produce the strongest monthly increase in core inflation in more than two decades. We believe these dynamics have further to run and look for another few months of heady gains in both headline and core inflation.
That said, we still expect inflationary pressures to ease up later this year as the initial hurry of spending stemming from pent-up demand fades and the supply side of the economy continues to adjust.
However, supply chain and labor constraints look likely to linger well into this year, and with inflation expectations rising and a patient Federal Reserve, we expect inflation to remain elevated over our 2022 forecast horizon compared to the past 25 years.
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