headline inflation YoY growth stands at 2.66%, moving down by -0.17% since last month and just above the central bank target of 2%
core inflation YoY growth is at 2.73%, moving down by -0.22% since last month
Insights:
Inflation remains above target but not at concerning levels, and it is going down.
Core inflation is falling, meaning that only volatile components (food, energy, etc.) continue to add to the pressure.
IntroInflation measures the change in price for goods and services acquired by households over time. Investors commonly talk about inflation to refer to a sustained rise in overall price levels.
MeasureIn the US we look at the Consumer Price Index (CPI), which tracks changes in the prices of a basket of goods and services that a typical urban consumer (90% of the US population) buys.
What causes inflationInflation can emerge because of different forces building-up on the demand or supply side.
Demand-pull inflation occurs when the overall demand for goods and services increases faster than production capacity. Such inflation tends to be benign for investors, as it comes with economic growth. Cost-push inflation instead derives from a supply side shock, pushing up either input prices - such as commodities and/or wages - or distribution prices - such as global supply chain bottlenecks.
Historically, inflation was also believed to emerge also from an increase in money supply (= it is the liquidity offered to banks and markets) by the central bank. But in the last decade this phenomenon did not happen: the QE-induced increase in money supply did not generate inflation.
Chart detailsWe show in the left chart both inflation and core inflation. What is the difference? While inflation normally refers to the price change in all categories of goods and services ("all items"), core inflation - a key measure observed by central banks to understand the impact of inflation on household savings - refers to all items less energy, food, alcohol and tobacco, which are the most volatile components.
Economic consequencesAt macro level, inflation affects consumption and thus economic growth. It is a priority for central banks to set an inflation target: the mission is to both avoid deflation (a decline in price levels) that would postpone consumption, or excessive inflation that would erode purchasing power. The US Central bank (Fed) aims to maintain price stability with an CPI inflation target around 2 % over the medium-term (shown with a green dotted line in the charts) to sustain economic growth and employment.
Market implicationsInvestors can deal with inflation in a few ways. Higher inflation is: · usually good for stocks (especially sectors such as energy, banks, utilities) up to a historical limit of 5/6% price growth YoY (above that, inflation will kill the stock market, as consumption will fade in normally functioning economies) · usually bad for bonds, as yields tend to rise (prices fall) on the expectation of rate hikes by central banks; it is normally suggested to reduce bond duration or switch to FRNs at times of higher inflation · usually good for commodities, or real assets
Viceversa, bonds like lower inflation, while the effects are mixed on stocks and commodities (with their prices mainly depending on other factors)
US inflation expectations
market expectations
US inflation expectations according to market participants
where do markets see US inflation in 5 years?
Latest available data: 20-03-2026
market expectations:
are currently pricing US inflation to be at 2.13% in 5-years time
lately expectations have been mixed, down by -0.01% since last week, unchanged in the last session
their level is very low, in the lower range of the last 3 years
Implications:
Inflation expectations are moving down and are on point at target level
IntroInflation expectations are simply the rate at which people - consumers, businesses, investors - expect prices to rise in the future. The 5y5y forward is one of the key measures of expected inflation, looking at the average inflation expected by market participants over the 5-year period that begins 5 years from today.
RelevanceInflation expectations matter because actual inflation depends, in part, on what we expect it to be. The Fed’s mandate is to achieve maximum sustainable employment and price stability, the latter being defined as an annual inflation rate of 2% on average. To help achieve that goal, the central banks strives - among other things - to to “anchor” inflation expectations at roughly 2%.
Chart detailsIn simple terms, the chart is helpful to understand where investors see today the inflation trend go over the medium term. Out of curiosity, the 5y5y forward rate is constructed by using nominal and inflation-linked treasury yields over 5 and 10 years.