There is now enough evidence to conclude that price pressures are strengthening. The increase in CPI inflation to 2.0% in April left it in line with the Fed’s target and core inflation rose to an eight-month high of 1.8%. Moreover, a widening in margins in the services sector pushed core producer price inflation up to 1.8%. Finally, some of the survey evidence has indicated that price rises are becoming more prevalent. The increase in the selling prices balance of the NFIB small firms survey, for example, suggests that core PCE inflation will climb to 2% within six months. That would be a quicker rebound than either the Fed or the markets are expecting.
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