In the near term, US inflation appears to have turned a corner with April, the trough in the twelve-month growth rate, now firmly behind us. Given that lower rates in the second quarter were primarily driven by falling oil prices (due to short-term excess supply), headline inflation is likely to continue to recover. Fathom Consulting questioned investors’ increasingly bearish outlook for inflation as far back as the 19 March when we argued that COVID-19 had had an impact on both the demand and supply sides of the economy and that it was far from certain that the net impact on inflation would be negative. Investors are increasingly coming round to this view with market-based measures of inflation expectations now back at pre-crisis levels.
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