El-Erian Warns Inflation Has Yet to Peak as Energy Prices Rise

Mohamed El-Erian, who almost a year ago accurately forecast that elevated US inflation would be persistent, says it hasn’t peaked.

The closely followed bond-market strategist agrees with monthly consensus estimates for May’s consumer price index to be reported on Friday, but told Bloomberg Television’s The Open on Thursday that “what worries me is that the June month-on-month print will be worse than the May month-on-month print. Those who boldly said inflation has peaked and is coming down may have to change their minds.”

The CPI for April rose 8.3%, down from 8.5% the prior month, but still close to the biggest increase in four decades. Annual inflation likely climbed at an 8.2% pace in May, according to the median projection in a Bloomberg survey ahead of the release Friday. That’s still more than four times the levels seen before the pandemic.

“It wouldn’t surprise me if we see a headline print higher than 8.5%,” though “not as early as next month,” said El-Erian, 63. “Because the drivers of inflation are broadening. At the headline level, energy prices are going up month-on-month quite dramatically. We see pressure on shelter and food. It’s way too early to say inflation has peaked.”

Inflation erodes the value of bonds’ fixed payments. The 10-year Treasury has lost almost 12% this year amid a decline in many financial assets, according to the S&P U.S. Treasury Bond Current 10-Year Total Return Index.