Persistent double-digit inflation in the U.K. is raising fresh questions in U.S. markets about whether traders and investors are once again off the mark about the most likely trajectory for price gains. The U.K.’s year-over-year 10.1% rate for March marked the seventh straight month that inflation has been in the double digits. It’s also the highest level of any country in the Group of Seven, which also includes the U.S., Canada, France, Germany, Italy, Japan.
In addition, senior economist Sanjay Raja at Deutsche Bank said the firm now sees “clear upside risks” to its forecast of how high the Bank of England will end up raising rates, and now expects a 4.75% policy rate by June. Indeed, many traders are continuing to cling to a consensus view that U.S. inflation should fade as economic growth slows: In fed funds futures, they continued to mostly price in rate cuts by year-end from the Federal Reserve after one or two more rate hikes. In derivatives-like instruments known as fixings, inflation traders expect the annual headline U.S. CPI rate to fall to 4.97% for April and to as little as 2.4% by next February.
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