The lagged effect of the rapid run-up in commodity prices over the past year will push CPI inflation up from 3.1% in April to close to 4% by the summer. But now that the upward trend in commodity prices appears to have run out of steam, and in some cases has gone into reverse, inflation is much more likely to fall sharply towards the end of the year. If we are right in thinking that the fading of the policy stimulus will generate a slowdown in economic growth later this year too, then the Fed will not take any significant steps towards tightening monetary policy and Treasury yields will fall further.
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