CPI figures might add to tapering fears.
Friday’s jobs miss highlights that widespread shortages might soon weigh on the recovery. Since the global financial crisis, central banks' default answer to such data would have been more monetary stimulus. That's the only reason why US Treasury yields fell on Friday afternoon, with 10-year yields closing at 1.55%, the lowest since April. Yet, this time around, things might be different. Unit labor costs have risen 1.7%, although forecasts were showing a fall of -0.4%. It raises questions on whether the rise in inflation we are witnessing is transitory or not.
Yesterday’s Janet Yellen comments regarding the beneficial nature of higher interest rates for both the Federal Reserve and society raises even more doubts about the Fed's dovish message. Yellen, the “deficit dove”, might be preparing the ground for tapering talks ahead, as if inflation continues to strengthen.
This week’s core CPI is expected to show a rise of 3.4% YoY, the highest since 1993. However, the most critical data will be the monthly figure which is expected to come at 0.40%, well below the prior reading of 0.9%. If we see this number exceeding expectations, the bond market might throw a tantrum. Indeed, while yearly CPI readings are transitory, the monthly ones might not be, making early tapering talks more likely.