Inflation May Soften In November But This Analyst Thinks It Might Take Months For It To Get Back Closer To Fed's Target

The much-awaited November price inflation report is due at 8:30 a.m. EST on Tuesday, and it is widely expected to show a letup in pricing pressure.

What Happened: Economists, on average, expect the headline producer price index to show a 0.3% month-over-month increase in November, a slowdown from the 0.4% growth in the previous month. The annual rate of the CPI is also expected to slip back from 7.7% to 7.3%.

A softer inflation report is considered a precursor for a rally ahead of Wednesday’s Fed decision.

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An analyst at SoFi, however, thinks it would take a very long time for inflation to get near the Fed’s target of around 2%.

Inflation swaps currently imply that the year-over-year rate of the CPI will reach 2.5% only by June 2023, said Liz Young, chief investment strategist at online personal finance firm SoFi.

“If I could add music to tweets I’d use ‘So Far Away’ by Carole King,” she added.

Inflation swaps currently implying that y/y CPI for Jun 2023 will be 2.5%. If I could add music to tweets I'd use "So Far Away" by Carole King. pic.twitter.com/01SnJ13xk0

— Liz Young (@LizYoungStrat) December 12, 2022

An inflation swap is a derivative contract between two parties to transfer inflation risk by exchanging fixed cash flows. It is swapping the floating rate linked to an inflation index for a fixed-rate coupon in the same currency.

Inflation swaps serve as useful guides for analyzing inflation expectations and in turn are predictors of inflation.

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