Morgan Stanley's Gapen Expects Inflation to Peak in May or June

• Second-round effects of higher energy prices are observed in core inflation, particularly in airline fares and food at home.
• US inflation (year-on-year) is expected to peak in May or June, with the Fed likely to 'look through' current elevated readings with a long lag.
• The Federal Reserve is projected to stay on the sidelines for the rest of the year, indicating no further rate hikes.
• Companies are demonstrating strong pricing power, easily passing cost increases to consumers, reflecting robust underlying demand and an oligopolistic corporate structure.

Morgan Stanley's Chief US Economist, Michael Gapen, discusses the latest CPI report, noting second-round effects from energy prices on core inflation and catch-up effects on rents. He anticipates US inflation to peak on a year-on-year basis in May or June, suggesting the Federal Reserve will likely remain on the sidelines for the remainder of the year despite companies' continued pricing power.