US: Inflation pressure likely to rise further - NBF

According to National Bank of Canada’s analysts, Krishen Rangasamy, inflation pressure is likely to rise further as the output gap moves into positive territory. 

Key Quotes:

“After this morning’s consensus-topping GDP data, which showed real growth of 2.3% annualized in Q1, the U.S. output gap is now almost closed according to Congressional Budget Office estimates of potential. In theory, that means price pressures will intensify. True, the Fed’s preferred measure of inflation, the core PCE deflator, currently shows an annual inflation rate of less than 2%. But expect the latter to rise as the output gap eventually moves into positive territory.”

“Also warranting optimism that the Fed will finally hit its 2% inflation target is the tightening labour market which is pushing up costs.”

“The private sector’s employment cost index, which takes into account wages, salaries and benefits, rose again in Q1 and is now growing at the fastest pace since 2008.”