The subdued November CPI figures and the news that the Fed left its inflation and interest rate projections unchanged triggered a mini-rally in the bond markets, but arguably investors should be paying closer attention to the surge in producer price inflation. That points to a sharp rebound in goods inflation over the next 12 months. Add a fiscal stimulus into the mix and we think that core inflation is likely to rebound next year more rapidly than the Fed projects, prompting officials to raise rates four times in 2018, rather than the three hikes they currently have pencilled in.
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