Systematically synthesises realised inflation, cost pressures, and market expectations to assess the prevailing US inflation regime.

US Inflation and Price Dynamics

Regime Assessment:

Regime: Transitional / Fragile Balance
Regime Confidence Index: Medium Confidence
Stability: Fragile

Why This Regime:

The US Inflation Signal has entered a Transition state as inflationary forces neutralize (1).
Dynamic weighting prioritizes this high-confidence macro composite, which shows deteriorating stability and proximity to a "Cool" regime (1).
Secondary drivers like PCE and CPI/PPI divergence remain in persistent Neutral regimes, providing a floor to the transition (2)(3).
Wage Growth and Inflation signals were downweighted due to low interpretation confidence and stale quarterly data (4).

Alignment & Tensions:

Realized price signals reinforce each other, with PCE and CPI/PPI both showing multi-year stability within neutral bands (2)(3).
Tensions exist between weakening macro momentum and strengthening market expectations (1).
Inflation Term Structure and Market Implied Inflation are both trending toward Reflationary thresholds (5)(6).
Tensions do not overturn the regime because realized policy-relevant inflation (PCE) remains range-bound and lacks directional momentum (2).

Scenario Balance:

Dominant scenario: Continued disinflationary transition as latent macro pressures equalize (1).
Primary upside risk: Reflationary shift triggered by 5-year breakevens breaking above the 1.0 z-score threshold (5).
Primary downside risk: Deflationary acceleration if the US Inflation Signal composite z-score falls below -0.50 (1).

What Would Change the Regime:

The US Inflation Signal z-score reversing to move above +0.25 (1).
PCE Composite exceeding 0.75, triggering a transition back to a "Hot" regime (2).
Market Implied Inflation (MIIE_z) reaching 1.0, signaling a "Rising" expectations regime (6).

Inputs

Inflation Signal

Signal Summary:

Configuration statement: Given a composite z-score of 0.0007 and a scaled value of 20.80, this setup aligns with Transition-biased price paths and Indeterminate volatility, where the dominant risk is a Regime shift, not trend continuation.
The signal is currently in a Transition state, reflecting a structural turning point where inflationary forces are neutralising (1).
Conviction Band: Medium; Interpretation Confidence: High Confidence; Internal Conflict Flag: No. Signal Stability Assessment: Deteriorating; Threshold Proximity: Near; Revision Sensitivity: Moderate.

Methodology Applied:

Composite z-scores between -0.25 and +0.25 define a Transition state with high regime-flip risk (1).
A z-score significantly below +0.50 indicates the market is no longer in a HOT regime (inflation above 10-year trend) (1).
Falling values imply a disinflationary impulse or demand deceleration, increasing potential for monetary easing (1).
Inflation Signal (FRED/Investor Anatomy), latest observation: 2026-03-31.

Key Dynamics:

The primary driver is the decline in the composite z-score from 0.31 to 0.00 over the last quarter, signaling a loss of inflationary momentum (1).
Momentum has shifted from Neutral to Transition as the signal approaches the -0.50 threshold for a COOL regime.
Conditional Invalidation: A reversal where the z-score moves above +0.25 or 3-month annualised CPI exceeds the YoY rate (1).
Stability is Deteriorating as the signal has steadily moved lower from its 2024 highs.

Scenario Balance:

Base case dominant: Continued disinflationary transition as latent pressures equalise.
Upside risk: Reflationary surprise triggered by a sudden spike in copper or liquidity metrics.
Downside risk: Deflationary acceleration if the composite z-score falls below -0.50.

Time Horizon & Aggregation:

Time Horizon: Cyclical (months). The transition reflects a shift in the medium-term inflation trend.
Aggregation Weight Hint: Medium. The signal is currently at an inflection point, requiring confirmation from other macro themes.

Macro Relevance:

Informs US inflation and price dynamics by quantifying latent pressure across realised prices and expectations (1).
Economic mechanism: Disinflationary impulse suggesting a tailwind for fixed income and a potential headwind for USD.
Cycle position: Not determined.
Typically interacts with liquidity (M2) and growth signals (Industrial Production) to distinguish demand-pull from cost-push dynamics (1).

Regime Context:

The current Transition regime is newly entered, following a period of persistent neutrality.
Direction of change: Weakening inflationary pressure as the signal moves toward the COOL threshold.

Model Limitations:

Susceptible to CPI revisions and seasonality noise (1).
TIPS liquidity bias may distort market-implied inflation components during periods of stress (1).

Data & References:

Inflation Signal Composite, latest date: 2026-03-31 (1).
Dominant datapoint: Composite z-score (0.0007).
Additional data: Monitoring M2 money supply and Copper prices would provide better confirmation of demand-pull factors (1).

Inflation Signal

Wage Growth and Inflation Signal

Signal Summary:

Configuration statement (mandatory): Given a Wage_Pressure_z of -0.53 and Labor_Tightness_z of -0.17 (1), this setup aligns with Range-biased price paths and Normal volatility, where the dominant risk is Mean reversion, not Regime shift.
The signal is currently in a NEUTRAL regime, indicating wage growth aligned with historical norms (1).
Conviction Band: Low; Interpretation Confidence: Low Confidence; Internal Conflict Flag: No. Signal Stability Assessment: Stable; Threshold Proximity: Moderate; Revision Sensitivity: Unknown.

Methodology Applied:

A z-score between -1.0 and +1.0 designates a NEUTRAL regime, implying a stable inflation outlook (1).
The Inflation Composite blends Wage Pressure and Labor Market Tightness (LMT) to predict core inflation persistence (1).
Weights are applied to Employment Cost Index (ECI) for private and civilian workers to compute pressure (1).
Wage Growth and Inflation Signal: observation date not provided.

Key Dynamics:

The primary driver is the convergence of Private and Civilian Wage YoY growth at 3.3% (1).
Stabilisation is evident as the Inflation Composite z-score has remained in the NEUTRAL band for fifteen consecutive observations (1).
Internal coherence is high as both wage and labor tightness metrics support a non-inflationary expansion.
Conditional Invalidation: An Inflation Composite z-score exceeding +1.0 (HOT regime) (1).
The signal exhibits high persistence, having maintained the NEUTRAL classification throughout the provided history.

Scenario Balance:

Base case dominant: Continued range-bound inflation as wage growth tracks the 24-month baseline (1).
Upside risk: A sudden spike in Labor_Tightness_z triggering a "HOT" wage-push inflation regime (3).
Downside risk: Rising labor market slack leading to a "COOL" disinflationary transition (1).

Time Horizon & Aggregation:

Time Horizon: Cyclical (months); ECI inputs are quarterly and reflect medium-term cost structures (1).
Aggregation Weight Hint: Low; data timeliness cannot be assessed from provided content.

Macro Relevance:

Informs the "pricing" macro dimension by measuring the intensity of wage-push inflation (1).
Economic mechanism: Inflationary pressure originating from labor costs and supply-demand imbalances (1).
Cycle position: Not determined.
Typically confirms trends in Policy-Relevant Inflation (PCE) (2) and labor demand signals.

Regime Context:

Persistent NEUTRAL regime; no recent transitions observed in the Inflation Composite.
Direction of change: Stabilising within the neutral corridor.

Model Limitations:

ECI data is quarterly and lagged, requiring interpolation between releases (1).
JOLTS-based metrics (used for tightness) are subject to significant survey noise (1).

Data & References:

Wage Growth and Inflation Signal, latest observation date not provided (1).
Influential datapoints: Wage_Pressure_z (-0.53) and Labor_Tightness_z (-0.17).
Additional datasets: US CPI/PCE data (2) and PMI Prices would improve reliability.

Wage Growth and Inflation Signal

Policy-Relevant Inflation (PCE) Signal

Signal Summary:

Configuration statement (mandatory): Given a PCE_Composite of -0.23, headline PCE_YoY of 2.83%, and CorePCE_YoY of 3.06%, this setup aligns with Range-biased price paths and Normal volatility, where the dominant risk is Mean reversion, not Regime shift. (1)
The signal is currently in a stable Neutral regime, having transitioned from a Hot regime in late 2023. (1)
Conviction Band: Medium; Interpretation Confidence: High Confidence; Internal Conflict Flag: No. Signal Stability Assessment: Stable; Threshold Proximity: Far; Revision Sensitivity: Moderate.

Methodology Applied:

Composite scores between -0.75 and 0.75 are classified as Neutral, suggesting no immediate policy bias. (1)
The "Level_pp > 0" rule identifies that inflation exceeding the 2% target creates structural pressure for restrictive rates. (1)
Momentum is used as an early warning for regime transitions toward Hot or Cool states. (1)
Policy-Relevant Inflation (PCE) Signal; Latest observation: 2026-01-31. (1)

Key Dynamics:

The primary driver is the stabilization of both Headline (-0.22 Z-score) and Core (-0.25 Z-score) inflation within historical norms. (1)
Inflation remains above the 2% policy target, maintaining a floor under restrictive monetary policy expectations. (1)
Momentum has flattened, with the PCE_Composite showing negligible change from the prior month (-0.234 vs -0.226). (1)
Conditional Invalidation: A PCE_Composite move exceeding 0.75 would trigger a transition back to a Hot regime. (1)
The signal has shown high persistence, remaining in the Neutral regime for over 28 consecutive months. (1)

Scenario Balance:

Base case dominant: Continued Neutral regime persistence as inflation levels oscillate slightly above the 2% target.
Upside risk: A re-acceleration in consumer demand or energy shocks pushing the composite toward the 0.75 "Hot" threshold.
Downside risk: Rapid labor market softening causing a transition toward the -0.75 "Cool" disinflationary threshold.

Time Horizon & Aggregation:

Time Horizon: Cyclical (months), reflecting the typical lag in PCE data and central bank reaction functions.
Aggregation Weight Hint: Medium, as PCE is the Federal Reserve's primary inflation gauge but currently lacks trend momentum.

Macro Relevance:

Informs the pricing of real rates and the Federal Reserve's "higher for longer" policy stance.
Implies an economic transmission mechanism where residual labor market tightness sustains core inflation above target. (1)
Cycle position: Not determined.
Interacts with 10Y Breakeven Inflation and Unemployment rates to validate the sustainability of the current inflation path. (1)

Regime Context:

Regime persistence is high; the signal has occupied the Neutral zone since September 2023. (1)
Direction of change: Stabilising within the Neutral band.

Model Limitations:

Subject to material BEA revisions and monthly reporting lags. (1)
Z-scores may be distorted by historical structural breaks in inflation volatility. (1)

Data & References:

Policy-Relevant Inflation (PCE) Signal (2026-01-31). (1)
Most influential: PCE_Composite (-0.234) and CorePCE_YoY (3.06%). (1)
Dallas Fed Trimmed Mean PCE and 10Y Breakeven Inflation Rates would improve reliability. (1)

Policy-Relevant Inflation (PCE) Signal

Inflation Term-Structure Signal

Signal Summary:

Configuration statement (mandatory): Given an Infl_Term_Composite of 0.374, a Z_T5 of 0.806, and a Z_mReal of -0.085, this setup aligns with Range-biased price paths and Normal volatility, where the dominant risk is Data uncertainty, not Regime shift. (1)
The signal is currently in a persistent Neutral regime, characterized by market pricing within normal historical bands. (1)
Conviction Band: Medium; Interpretation Confidence: High Confidence; Internal Conflict Flag: No. Signal Stability Assessment: Stable; Threshold Proximity: Moderate; Revision Sensitivity: Unknown.

Methodology Applied:

A Composite z-score between -0.75 and 0.75 defines a Neutral regime with no strong directional bias. (1)
Values above 0.75 indicate Reflationary conditions where inflation compensation and real-rate easing are elevated. (1)
The signal weights 5Y breakevens (0.4), 10Y breakevens (0.3), and 10Y real yields (0.3). (1)
Latest observation: 2026-03-31.

Key Dynamics:

The primary driver is the 5Y breakeven (Z_T5: 0.806), which has crossed into reflationary territory. (1)
The 10Y real yield (Z_mReal: -0.085) provides a stabilizing offset, keeping the composite within the Neutral band. (1)
Momentum is strengthening toward reflation, rising from -0.169 in the prior month. (1)
Conditional Invalidation: A Composite move above 0.75, which would trigger a Reflationary regime shift. (1)

Scenario Balance:

Base case dominant; risks balanced: Market pricing remains within historical norms.
Upside risk: A shift to Reflation triggered by further expansion in 5Y inflation expectations.
Downside risk: Disinflationary pressure triggered by a sharp rise in real interest rates (Z_mReal < -0.75).

Time Horizon & Aggregation:

Time Horizon: Cyclical (months) due to monthly resampling and the identification of rolling historical baselines. (1)
Aggregation Weight Hint: Medium as a conditioning variable for asset tilts. (1)

Macro Relevance:

Informs the pricing dimension of inflation compensation and real financial conditions. (1)
Mechanism: Measures the ease of real rate environments versus market-implied inflation protection demand. (1)
Cycle position: Not determined.
Typical interaction: Conditioned against liquidity and credit spreads to validate macro shifts. (1)

Regime Context:

Persistent regime; the signal has remained Neutral since April 2023. (1)
Direction of change: Strengthening toward the Reflationary threshold. (1)

Model Limitations:

TIPS liquidity distortions during market stress can create false disinflation signals. (1)
Monthly resampling introduces recognition lag for rapid market shifts. (1)

Data & References:

Latest data: 2026-03-31; revision window cannot be assessed.
Influential datapoints: 5Y Breakeven Inflation Rate (2.63) and 10Y Real TIPS Yield (1.88). (1)
Additional metrics like the St. Louis Fed Financial Stress Index would improve tail-risk depth. (2)

Inflation Term-Structure Signal

Market Implied Inflation Signal

Signal Summary:

Configuration statement: Given a T5YIE of 2.63 and a T10YIE of 2.38, this setup aligns with Range-biased price paths and Normal volatility, where the dominant risk is Mean reversion, not Trend continuation, as the MIIE_z remains within the -0.5 to 1.0 STABLE threshold (1).
The signal remains in a STABLE regime, suggesting inflation expectations are consistent with long-term norms (1).
Conviction Band: Medium; Interpretation Confidence: Mixed Signals; Internal Conflict Flag: No. Signal Stability Assessment: Improving; Threshold Proximity: Near; Revision Sensitivity: Unknown.

Methodology Applied:

Z-scores between -0.5 and 1.0 classify the STABLE regime for inflation compensation (MIIE_z) (1).
The signal combines level and momentum for T10YIE and T5YIFR to quantify market-based expectations (1).
FALLING signals (z ≤ -0.5) must be discounted if liquidity stress is present (1).
Market Implied Inflation Signal; latest observation 2026-03-31 (1).

Key Dynamics:

Strong 3-month momentum (t5yie_ann3m_z: 1.15) is the dominant driver of the current score (1).
The composite score is stabilising at higher levels, rising from 0.15 to 0.57 in recent months (1).
Components show no internal conflict as both 5-year and 10-year breakeven levels are positive (1).
Conditional Invalidation: An MIIE_z reading at or above 1.0 triggers a RISING regime shift (1).
Signal stability is high, with the STABLE regime persisting for the entire provided 36-month history.

Scenario Balance:

Base case dominant: Inflation expectations remain range-bound within long-term historical norms.
Upside secondary: Acceleration in inflation compensation if short-term momentum breaks above 1.0 z-score.
Downside residual: Disinflationary flight-to-quality event pulls the composite score below -0.5.

Time Horizon & Aggregation:

Time Horizon: Cyclical (months) as the signal tracks medium-term inflation compensation trends.
Aggregation Weight Hint: Medium due to the data being classified as stale relative to real-time.

Macro Relevance:

Informs the pricing dimension by measuring the spread between nominal Treasuries and TIPS (1).
Implies an economic mechanism where market-based inflation compensation is currently neutral for policy.
Cycle position: Not determined.
Typically interacts with realized inflation (CPI/PPI) and liquidity signals for directional confirmation (1).

Regime Context:

Current STABLE regime is highly persistent, showing no transitions in the provided data history (1).
The direction of change is strengthening, with the composite score trending toward the upper threshold.

Model Limitations:

TIPS liquidity premiums and QE supply shifts can artificially distort breakeven levels (1).
Signal includes non-inflation risk premia, which may obscure pure inflation expectations (1).

Data & References:

Latest dataset: Market Implied Inflation Signal (2026-03-31) (1).
Most influential datapoints: T5YIE (2.63) and 3-month annualised z-score (1.15).
External realized data like CPI and PPI would improve directional conviction (1).

Market Implied Inflation Signal

CPI vs PPI Divergence Signal

Signal Summary:

Configuration statement: Given a divergence_z of 0.23, a CPI_YoY of 2.43%, and a PPI_YoY of 3.22%, this setup aligns with range-biased price paths and normal volatility, where the dominant risk is mean reversion because the abs(z) < 0.35 threshold indicates a Neutral regime, not a trend continuation.
The signal is currently classified as NEUTRAL, indicating the producer-to-consumer price gap is within historical noise thresholds (1).
Conviction Band: Medium; Interpretation Confidence: High Confidence; Internal Conflict Flag: No. Signal Stability Assessment: Stable; Threshold Proximity: Near; Revision Sensitivity: High.

Methodology Applied:

Divergence thresholds: abs(z) < 0.35 is defined as NEUTRAL, representing a stable price relationship (2).
HOT regime requires z >= 1.0 or (z >= 0.75 and CPI YoY >= 3.0%) to signal cost-push pressure (1).
The methodology treats producer prices as a leading indicator for consumer price direction (1).
CPI vs PPI Divergence Signal: latest observation February 28, 2026 (1).

Key Dynamics:

The primary driver is the narrowing gap between PPI and CPI, with the PPI_minus_CPI_YoY spread currently at 0.78 (1).
Recent momentum shows a shift from negative to positive divergence, though it remains below the 1.0 z-score threshold for a regime shift (1).
Stabilisation in the NEUTRAL band has persisted for over 28 months (1).
Conditional Invalidation: Divergence z-score exceeding 1.0 or falling below -1.0.

Scenario Balance:

Base case dominant; risks balanced due to stable price relationship.
Upside risk: PPI acceleration beyond CPI causing margin compression and a transition to HOT.
Downside risk: PPI collapse relative to CPI leading to a return to the COOL (disinflation) regime.

Time Horizon & Aggregation:

Time Horizon: Cyclical (months) as it identifies multi-month pipeline inflation trends.
Aggregation Weight Hint: Medium as the signal currently lacks extreme directional bias but identifies core stability.

Macro Relevance:

Informs the pricing and inflation dimension by measuring relative speeds of production and retail price changes (1).
The implied economic mechanism is pipeline price pass-through; current neutrality suggests no significant upstream pressure on retail margins.
Cycle position: Not determined by methodology.
Typically interacts with inflation breakevens and ISM Prices Paid to confirm cost-push environments (1).

Regime Context:

Persistent Neutral regime since October 2023 (1).
Direction of change: Stabilising, with a slight strengthening of the producer price component relative to consumer prices.

Model Limitations:

PPI is subject to multi-month revisions which can retroactively change z-score classifications (1).
Pass-through from producer to consumer prices is often lagged and incomplete (1).

Data & References:

Latest dataset observation: 2026-02-28 (1).
Dominant datapoints: divergence_z (0.23) and PPI_YoY (3.22) (1).
Additional indicators: ISM Prices Paid and Inflation Breakevens would improve reliability.

CPI vs PPI Divergence Signal