Market Mispricing of Inflation Risks Despite Low Outlook, Warns Citigroup.

Citi warns that markets are not pricing in the downside risks for inflation ahead of the May inflation release, despite two consecutive lower-than-forecast CPI prints. Inflation expectations are higher than at the beginning of 2021, despite tighter financial conditions, lower year-over-year inflation, and higher unemployment and jobless claims. Citi predicts that core inflation will fall below 0.4% m/m in May for the first time since November. While analysts predict that higher than expected core inflation will trigger a rate hike from the Federal Open Market Committee, Citi believes that the risk is the other way around.