Inflation is no longer just a supply story, Apollo's Slok says

What happened

Apollo's chief economist Torsten Slok said the Federal Reserve faces a more complex inflation challenge as demand pressures return alongside supply effects. San Francisco Fed estimates show the roughly 3% core PCE inflation pace is now split evenly between supply and demand, unlike 2022 when supply shocks dominated.

Confirmed

Global impact / market context

Interest-rate increases can cool demand-driven inflation by reducing spending and hiring, but do little against supply pressures. With both forces roughly equal, the Fed's path back to its target is less straightforward, which affects bond prices, borrowing costs, and company capital spending plans.

Analyst inference

Since 2024 the demand share of inflation has risen steadily, pointing to excess spending and tighter labor-market conditions keeping price growth elevated. This reframes the rate debate, because tighter financial conditions may only partly address the remaining overshoot even as rates stay restrictive.

Analyst inference

What to watch

1. San Francisco Fed estimates showing core PCE inflation near 3%, split evenly between supply and demand, are the key data point to track for whether that balance shifts. Confirmed
2. Watch whether the Fed keeps rates restrictive for longer to restrain demand-driven inflation, which would raise borrowing costs for companies and weigh on capital spending plans. Proposed
3. Watch demand-share trends in inflation data; a rising share would suggest tighter financial conditions are needed, affecting Treasury yields, bond prices, and investor positioning in rate-sensitive assets. Analyst inference

Evidence

• seekingalpha.com