JP Morgan says the US won't get to a 2% inflation rate unless there is a recession

NEW YORK (February 8) A big change could come from geopolitical events. Remarks from Michael Feroli, Chief U.S. Economist at J.P. Morgan on his US inflation:

• Inflation has cooled significantly relative to earlier boomy highs from the past few years, but still remains above target. Weakening in core goods inflation has been an important moderating force for overall inflation, but core services prices excluding housing have cooled much less noticeably lately
• Absent a recession next year, we don’t see inflation getting all the way back down to 2%.
• Core goods prices in the U.S. have been roughly flat throughout 2023, reflecting a near-return to pre-pandemic trends. However, inflation in the services sector has been more resilient.
• In 2024, while the unwinding of supply chain shocks could deliver further disinflation, we think the ‘final mile’ of getting inflation down will require a softer labor market
• We are already seeing wage inflation slow and we think the labor market should soften over time as the economy is impacted by higher interest rates. This should allow core services prices to moderate, working to bring broader inflation aggregates closer to target.”
• After a strong run throughout much of 2021 and 2022, food price inflation settled down to a more moderate trend of 0.2% monthly gains in 2023, and we look for similarly unexciting increases moving forward
• Swings in energy could be important, but we believe that any upcoming big changes would be more likely related to factors such as geopolitical events

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