While stocks fell slightly on Thursday, investors are mostly ignoring recent reports showing inflation is still a very real problem. But Bank of America thinks they may be forced to in the new year as inflation gets even worse. “The potential policy changes on the horizon — higher tariffs, deficit-financed tax cuts, and tighter immigration policy — could all put upward pressure on prices. Indeed, as a result of these policy changes, we forecast little decline in core PCE inflation over the next two years,” wrote economist Stephen Juneau in a Thursday note to clients. Data from the last two inflation readings all points to stalling progress on disinflation. November’s consumer price index reading showed that the 12-month inflation rate increased 0.3% last month to 2.7%, while the annual rate rose 0.1 percentage point, the Bureau of Labor Statistics reported on Wednesday. Inflation similarly perked up in October , with the CPI increasing 0.2% for the month to 2.6%, up 0.2 percentage points from September. Similarly, Thursday’s release of November’s producer price index indicated that wholesale prices increased 0.4% last month , higher than the Dow Jones consensus estimate for 0.2%. After the November CPI reading came in line with expectations, the probability of the Federal Reserve cutting interest rates by a quarter-percentage point at next week’s meeting rose to around 98%, as implied by the 30-day Fed funds futures prices . Beyond that, the outlook remains “murky,” Juneau wrote. “At its meeting next week, the Fed will also have to admit to the lack of progress on inflation,” he elaborated. “A pause in January is likely in our view, and the risk is that policy changes could make that pause a lengthy one.”
