The slowdown in first-quarter GDP growth to 1.6% annualised, from 3.4%, was more marked than expected, but it was principally due to a bigger drag from the net exports and inventories categories. With real consumption rebounding strongly toward the end of the quarter, second-quarter GDP growth is on track for a 3.0% gain, suggesting that fears of stagflation are badly misplaced. At the same time, despite the temporary surge in inflation in the first quarter, the fundamentals and the survey-based evidence both point to a resumption of the disinflationary trend soon. The upshot is that we still think a soft landing is the most likely outcome.
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