US inflation could fall to 5% in the next two to three months, according to Wells Fargo.
US inflation unexpectedly surged to 9.1% in June, but since then oil and gasoline prices have fallen as fears of an economic downturn have taken hold. In June, gas cost $5 a gallon.
"We would not be surprised to see the headline 12-month consumer price inflation reading post a sudden, large drop, maybe from 9.1% for June to 5% or 6% in the next two or three months," the bank's investment institute team said.
The fact that the headline figure is a year-on-year comparison would likely contribute to a lower reading.
The bank's analysts said that inflation would likelygrind rather than "glide" lower over the next year.
Rents and other prices that are important to the economy are likely to remain high despite the fall in commodity prices.
The Federal Reserve should not allow itself to be lulled into a false sense of security until inflation returns to 2%.
Inflation should wear down household spending and economic and earnings growth as the path lower becomes more of a grind than a glide, they said.
We don't think the Fed will be as quick to ease its anti-inflation campaign as equity market enthusiasm might suggest.
According to Wells Fargo, the US will go into a moderate recession by the end of the year. The S&P 500 is expected to end the year between 3,800 and 4,000.
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