The inflation figures were bang in line with expectations and may have disappointed a market that is fixated with rising inflation fears. Let's face it, 1.7% is hardly going to inflame concerns about runaway inflation (and the core rate was lower still). That said, the latest batch of numbers are still very much "business as usual" figures, with the big pandemic-induced base effects not kicking in until the March numbers are released next month.
That said, the 0.4%Mo
M increase was fairly chunky and builds upon a 0.3%Mo
M gain the previous month. We can gain some further insight into what is happening by looking at shorter, more recent periods of monthly inflation, unaffected by pandemic base effects, and annualizing them. This is what we do in the chart below, and it shows that 3m and 6m annualized inflation is running well above 2%, closer to 2.5%, and rising. This supports what JK is saying about the looming peak in inflation, and also hints at the sort of levels to which inflation might drift down to later in 2021 after the base-induced peaks, but only on the assumption that these annualized rates do not pick up further, which is by no means assured, and JK has noted some pick up in margins expansion, especially in the service sector in some of his recent notes. So such annualized figures might best be viewed as the lower bound of what is likely towards the year-end.
ANNUALIZED US CPI INFLATION