Inflation is Inflationary: U.S. Inflation Outlook 2018

Our clients frequently ask us for our macro views, and in particular how we view the global
economy and inflation. As part of our efforts to provide market color to our clients and
prospects, we are introducing our “Asset Allocation Series”. In this first piece, we discuss our
inflation outlook for 2018.

During a recent interview, a top government official said “you can have wage inflation and
not necessarily have inflation concerns in general.”1 We find this comment counterintuitive
and potentially misleading. Perhaps this train of thought is a symptom of the Personal
Consumption Expenditure (PCE) core measure in the U.S. running consistently below the
Federal Reserve’s (Fed) 2% target for nearly two decades. This pervasive low inflation might
reflect a relatively weak economic recovery and disinflationary mindset prevailing in the
market.