Concerns about sticky inflation remain despite recent data showing U.S. price increases are slowing, JPMorgan said on Tuesday. The bank said that with each decline in inflation, it will face increasing challenges.
JPMorgan believes that the US inflation rate will continue to decline, but the speed of the decline may disappoint investors. "On inflation, while we maintain our long-standing view that inflation will continue to slow, we are concerned that there is no buffer left, which is fully shared by the majority," the bank said in a note to clients. “It may be easier to get inflation down from 10% to 5% and it will be increasingly difficult to get it down from 5% to 2%.”
Rising commodity prices could also complicate the inflation outlook, JPMorgan added. "The likelihood that the fed funds rate will remain elevated for an extended period will limit the prospect of any P/E expansion, at which point equities will need to rely solely on earnings growth for gains," the bank said.