Why Inflation Risks in the USA May Be Underestimated Right Now

Source: Coindoo Original Title: Why Inflation Risks in the USA May Be Underestimated Right Now Original Link:

A growing set of macro indicators is starting to flash early warnings that inflation may not be finished yet. While headline price pressures have eased enough to give policymakers room to cut rates, longer-term signals suggest the next phase of the inflation cycle could already be taking shape beneath the surface.

Macro analyst Namzes points to a turn higher in several forward-looking inflation measures, arguing that current calm may represent a cyclical low rather than a lasting resolution. Historically, these indicators have tended to move well ahead of official inflation data, often by more than a year.

Key Takeaways

• Inflation may be near a cyclical low, not the end of the cycle.
• Money supply trends point to rising inflation into 2027.
• Shelter inflation could bottom in 2026 and turn higher.

Money supply trends hint at inflation returning

One of the strongest signals comes from the year-over-year growth rate of US M2 money supply. When viewed through a historical lens, changes in money supply typically feed into inflation with a lag of roughly six to eight quarters. Based on that relationship, the recent expansion phase implies inflationary pressure could rebuild gradually and persist through late 2027.

This trajectory also aligns with a broader 5.4-year monetary cycle observed across multiple datasets. While money growth has started to slow, its previous expansion may still be working its way through the economy, suggesting inflation risks remain skewed to the upside over the medium term.

Historical patterns reinforce the late-2027 risk window

Looking at past inflation episodes tracked in the FRED database, there have been five notable inflationary spikes. Although the sample size is limited, the average path across those periods shows a similar pattern: a trough forming around the present window, followed by a multi-year climb that peaks roughly two years later. That composite points toward rising inflation pressure into late 2027, adding another layer of confirmation to the monetary signal.

The most sobering comparison comes from the inflation era of the 1960s through the early 1980s, when inflation unfolded in multiple waves rather than a single surge. While today’s structural backdrop is different, the historical example highlights how inflation can reaccelerate even after appearing to be under control.

Shelter inflation may delay, not prevent, the next rise

One reason headline CPI has cooled is the ongoing decline in shelter inflation, which tends to lag real-world housing conditions by many quarters. That built-in delay has weighed on overall inflation readings and helped justify recent rate cuts by the Federal Reserve.

However, this same lag means shelter inflation may reach its true cyclical low closer to mid-2026. If history repeats, shelter prices could then begin rising again into 2028, extending inflation pressures even as other components fluctuate.

Liquidity cycle adds another piece to the puzzle

Liquidity dynamics also appear to fit the same timeline. The year-over-year growth rate of US money supply peaked toward the end of 2025 and has begun to roll over. If past cycles are a guide, a cooling liquidity backdrop in 2026 could align with inflation cresting roughly a year later, placing a potential inflation peak around late 2027.

Taken together, these overlapping cycles suggest inflation risks may be shifting from the near term into the medium-term outlook. While current data supports easing financial conditions, the longer arc of money supply, shelter dynamics, and historical patterns implies that inflation may be more cyclical – and persistent – than markets currently assume.