Even as the European Central Bank worries about deflation, the United States has recently seen some hints of inflationary pressures. In recent weeks, a variety of inflation metrics have indicated that consumer prices rose sharply in April, surpassing consensus forecasts. Few investors can claim a distinguished record of successfully forecasting inflation—and we’re not about to start doing so—however, the recent inflationary data points are most likely noise rather than signal. The United States is probably closer to the end of this disinflationary stretch than to its beginning, but April’s price and wage data are not decisive indicators that the country is already on an inflationary path.

Recent data have gone against the disinflationary trend:

• The Consumer Price Index showed prices rising 2.0% in April versus the prior year; CPI hasn’t topped 2.0% since October 2012.
• The “core” CPI, which excludes volatile food and energy costs, rose 1.8% year-over-year in April.
• The 0.25% monthly rise in core CPI in April topped the 0.1% consensus forecast, while the last three months’ cumulative inflation was the fastest pace in two years.

Countering this somewhat, the “core” version of the Personal Consumption Expenditure price deflator (a Federal Reserve favorite) indicated a more modest 1.4% rise in prices in April compared to the corresponding period a year earlier. May’s CPI release due out on June 17 will be closely watched (and will come as the rate-setting Federal Reserve Open Market Committee begins its June meeting).

If broad-based price metrics appear somewhat mixed, what about wage increases? Unit labor costs rose at a whopping 5.7% annualized rate during the first quarter, according to a May release. This sounds highly inflationary, but is attributable primarily to a sharp weather-related drop in the denominator of this metric (workers produced fewer “units”—productivity fell at a 3.2% annualized rate in the first quarter—likely due to lousy winter weather, thus the cost per unit rose). The push to increase the national minimum wage to $10.10 per hour does not appear to be gaining much traction, despite Seattle recently voting to phase in a $15 hourly minimum, the nation’s highest. In any case, the impact on broad-based national compensation from a $10.10 minimum wage should not be overstated. While it would represent a 39% increase in the minimum wage from today’s $7.25 level, less than 5% of wage workers currently make $7.25 or less (and the percentage of the overall workforce, including salaried workers, is lower still). Any rise in the national minimum wage would likely increase fast-food prices, but would be unlikely to meaningfully and structurally change the path of inflation (and the labor market is probably not tight enough to support broad wage-indexation measures).

Market-based metrics including the inflation breakeven level (measured using the difference between yields of nominal and inflation-linked Treasury securities) are relatively stable: ten-year breakevens are 2.2%, in line with their year-end level; five-year breakevens have increased just 15 bps year-to-date to 2.0%.

Of course, inflationary outbreaks don’t necessarily announce themselves in advance. Labor-market slack remains, and the shrinking economy (first quarter real GDP fell 1.0% at an annualized pace) does not exactly appear inflationary, but investors should not assume that very low and stable inflation will persist for an extended period. If higher levels of inflation finally begin to flow through the economy, the Fed may feel pressured to respond slowly and deliberately, given that financial markets have not seen historically normal levels of policy interest rates (or non-QE bond markets) since 2008. The Fed may worry that if it leans too hard on the switch when inflation eventually becomes more evident, the stock market and economic train could derail. If this worry prevents a timely and adequate policy response, policymakers could find it difficult to push inflation back into the box.

Sean McLaughlin is a Managing Director on the Cambridge Associates Global Investment Research team.