The good news is that US inflation is under control. The bad news…it isn’t falling quick enough to temper rate rise expectations. As we wrote last week, inflationary is shifting from goods to services, but services inflation takes more time to trend lower. Core inflation in the US was up 0.4% in January, in line with expectations, but higher than December.

Super core was up only 0.2%, but that number probably needs to be at 0% to get the market excited. So we find ourselves back at the starting point and scratching our heads as to where things go from here.

We think the more important number will be tonight’s retail sales figures which give us a great measure on how ordinary people are adjusting their spending patters.

We know that developed economies have pent-up savings and people will draw on those savings to meet higher rates. But at some point those savings will be completely drawn down, and the rubber will hit the road.

Retail sales will give us a glimpse as to when that happens and inflation will adjust 3–4 months after that.

Bottom line: US bond yields are likely to remain where they are until we get confirmation that the consumer is struggling. That won’t be in inflation data, it will be through retail sales first and then eventually through unemployment and job numbers. That’s what we’re watching closely. The economy remains strong, but a moderation is inevitably on the horizon.

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Quicknote: US inflation is under control, but…