Tell-tale signs of long dormant inflation have slowly begun to emerge as I mentioned in a note dated January 16,https://www.linkedin.com/pulse/inflationary-trends-finally-emerging-peter-c-kenny
The economic landscape at the outset of 2017 speaks to modest growth, incremental gains in inflation, cycle highs for consumer sentiment and small business optimism. Stable energy prices, continued expansion in the housing sector of the economy and the prospects of a leaner regulatory regime in Washington all should lead to a constructive narrative for rates. If these trends remain intact through Q1, my expectations are that a good argument could be made for a 25 basis point move by the Fed on rates sometime in Q2.
In the subsequent several weeks we have seen further justification for that call. This past Friday, the Import and Export data for January was released. Import Prices M/M for January were 0.4% versus consensus 0.2%. Export Prices remained level at 0.1%. But most importantly, on a year-over-year basis, Import Prices were +3.7% and Export Prices were +2.3%. Further, the historically volatile energy sector has remained relatively stable as WTI crude trades in a tight band of $50/bbl-$55/bbl.