Skip to main content
Back
Select your role:
  • Individual Investor
  • Intermediary
  • Institutional investor

US inflation outlook

9 June, 2021

Frances Donald, Chief Economist
 

We’re entering a period where concerns about inflation have reached fever pitch. As such, inflation-related data releases are likely to be scrutinized closely for clues pertaining to what could happen next. In this market note, Frances Donald, Global Chief Economist and Global Head of Macroeconomic Strategy, shares her inflation outlook.

 

 

First, we expect to see a sizable pop in the already relatively elevated Consumer Price Index (CPI) readings, beginning with April’s 4.2% year-over-year rise¹—which is likely to head even higher in May. Throughout the end of Q2 and into the beginning of Q3, we’re also likely to encounter ongoing upside surprises across a host of price measures, from import prices to prices paid indexes in surveys.

Second, the pace of inflation should then begin to slow meaningfully in late Q3 2021 and continue into 2022 as the mismatch in demand and supply begins to ease. The handoff from goods price inflation to services price inflation, which typically takes some time, should also feed into that narrative. Crucially, we also expect labor supply to improve by late Q3, which should mollify concerns about wage pressures. This period should confirm that sizable increases in headline inflation were, indeed, transitory. 

Finally, as we peer into 2023 and beyond, we see scope for slightly higher structural inflation (in the 2.0% to 2.5% realm versus the 1.5% to 2.0% range during the prepandemic period) as the delayed effects of higher shelter costs, infrastructure spending, lending activity, and medical costs translate into moderate longer-term price pressure.

Note that throughout our forecast period, we expect core inflation to remain below headline inflation (nearly all the time) and, crucially, within the U.S. Federal Reserve’s (Fed’s) average 2.0% inflation targeting mandate. 

The global inflation picture remains benign

The United States isn’t an island—U.S. inflation is heavily correlated to global inflation, which remains muted. Notably, Chinese credit trends are consistent with future weaker inflation in China, which tends to filter through to U.S. inflation through trade and global forces. Crucially, the relatively weaker U.S. dollar has been an important contributor to inflation in the United States and signs of further weakness will translate into higher import prices. 

US inflation outlook: an overview


Source: Manulife Investment Management, as of 13 May 2021.

 

Download full PDF

1 U.S. Bureau of Labor Statistics, May 12, 2021.

  • How is the surging US dollar affecting Asian currencies?

    We draw insights from our pan-Asia fixed income and equity teams, who examine the impact of US-dollar strength and what this means for currencies in the region.

    Read more
  • China rolls out measures to support economic growth

    We believe that the latest supportive measures reiterate China’s stance on economic stability and see opportunities in China and Hong Kong equities that could benefit from these policy actions.

    Read more
  • Sri Lanka’s difficult road ahead

    Sri Lanka's imminent default holds lessons for investors and underscores the value of a sustainable investing framework.

    Read more
See all
  • How is the surging US dollar affecting Asian currencies?

    We draw insights from our pan-Asia fixed income and equity teams, who examine the impact of US-dollar strength and what this means for currencies in the region.

    Read more
  • China rolls out measures to support economic growth

    We believe that the latest supportive measures reiterate China’s stance on economic stability and see opportunities in China and Hong Kong equities that could benefit from these policy actions.

    Read more
  • Sri Lanka’s difficult road ahead

    Sri Lanka's imminent default holds lessons for investors and underscores the value of a sustainable investing framework.

    Read more
See all
Important notice

If you are having problems viewing fund information, please clear your browser cache and try again. Click here for information on how to clear the cache on your browser.

View more

Effective Tuesday, May 3, our Customer Service Centre at Manulife Financial Centre, Kwun Tong will resume normal operating hours: Monday to Friday, 9am to 6pm. 

View more
Important notice

If you are having problems viewing fund information, please clear your browser cache and try again. Click here for information on how to clear the cache on your browser.

View more

Effective Tuesday, May 3, our Customer Service Centre at Manulife Financial Centre, Kwun Tong will resume normal operating hours: Monday to Friday, 9am to 6pm. 

View more
Confirm