A pickup in US inflation has been well telegraphed, but April’s 4.2% year over year increase in the US Consumer Price Index was still striking. The dramatic rise is primarily a reflection of how far prices fell last year, with a strong rebound always likely. That said, we see several factors worth monitoring. Manufacturers have been facing supply bottlenecks causing their input costs to rise, some of which are typically passed onto customers. Consumer spending has surged, after roughly USD 340 billion in stimulus cheques were handed out in March. Businesses are also telling us that it is hard to hire, creating upward pressure on wages. While policymakers appear confident that many of these factors will prove temporary, markets will be very sensitive to any signs of a change in this stance. Investors should remain vigilant for signs of more persistent price pressures as a result.

US inflation pops as businesses face higher costs

% change year on year (LHS); index level (RHS)