A worried market sees what it wants to see.
In the months ahead, inflation will be critical as the market gauges whether/when the Fed plans to hike rates. Two factors are likely to skew inflation higher.
The first is higher fruit and vegetable prices because of ongoing droughts in California. That won’t affect core prices but even a rise in headline inflation will make the market skittish.
The second is healthcare. In April and May of last year, Medicare reduced payments and lowered reinbursements to private insurers, according to RBS. That adjustment will add 0.07 percentage points to y/y CPI. It’s not much but the market is jittery about inflation and it could lend a bid to the US dollar in the month ahead.
