U.S. inflation is ‘far stickier’ and could last a decade

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Inflation in the U.S. will be 'far stickier and longer lasting,' says portfolio manager

U.S. inflation is likely to be “far stickier” and could last a decade, according to Bill Smead, chief investment officer at Smead Capital Management.

Wall Street is gearing up for key inflation data later Tuesday, when the Labor Department releases its January consumer price index. It is a widely followed inflation gauge that measures the cost for dozens of goods and services spanning the economy.

“The enthusiasm … right now is the hope that we’ll get a friendly Fed out of a soft landing, and we do not believe that is going to be the case,” Smead told CNBC’s “Streets Sign Asia.”

“We think the inflation is going to be far stickier and longer lasting — in fact, a decade because in the United States, we have incredibly favorable demographics.”

Earlier in February, the Federal Reserve raised its benchmark interest rate by a quarter percentage point and gave little indication it is nearing the end of this hiking cycle. 

Controlling inflation

Smead underlined the Fed will find it tough to tame inflation despite the recent rate hikes.   

“We have 92 million people between 22 and 42, and they’re all going to spend their money on necessities the next 10 years, whether the stock markets are good or bad,” said Smead.

“They’re just going to be living their life. The economy should be pretty good and the Fed’s going to have a hard time controlling inflation,” he added.

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For now, investors seem to be betting on a solid CPI print on Tuesday that shows inflation is cooling and that a pause or pivot in Fed rate hikes may be near.

On the flip side, analysts warned, a miss will likely indicate that the Fed will hike interest rates even more.

Economists are expecting that CPI will show a 0.4% increase in January, which would translate into 6.2% annual growth, according to Dow Jones. Excluding food and energy, so-called core CPI is projected to rise 0.3% and 5.5%, respectively.

Stock futures ticked lower Tuesday morning as investors looked ahead to the inflation data.

Futures tied to the Dow Jones Industrial Average slipped 25 points, or 0.07%. Meanwhile, S&P 500 futures dropped marginally, and Nasdaq-100 futures declined 0.12%

— CNBC’s Jeff Cox contributed to this report

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