The latest U.S. inflation data is stoking concern that price pressures aren’t abating as fast as hoped in the U.S. — a task that National Bank Financial Inc. (NBF) says is complicated by loose financial conditions and the threat of higher tariffs.
In a research note, NBF said the details of the November price data for the U.S., which were released this week, reduced its confidence that U.S. inflation “will return to its target on a sustainable basis.”
For one, the data revealed that certain categories, such as food and vehicles, that have helped drive the easing of price pressures in recent months “now appear to be regaining strength,” the report said.
“More generally, it was the resurgence in the core goods category that did most to fuel our doubts, as prices in this segment rose by the most in 18 months in November,” NBF said.
This return of goods inflation could also be compounded by the imposition of new tariffs, which would boost prices, in the months ahead, it noted. At the same time, loose financial conditions pose an obstacle to bringing inflation back down.
NBF noted that the Goldman Sachs Financial Conditions Index — a model that tracks financial conditions based on factors such as equity valuations, corporate credit spreads and bond yields, along with interest rates — is currently in inflationary territory.
“While positive for growth, such loose financial conditions also generally translate into increased price pressures,” the report said, noting that core inflation has increased by 0.6% on average when the Goldman Sachs index is at current levels.
Against this backdrop, NBF said “a rapid return of inflation to target appears optimistic, unless the economy or financial markets underperform.”