The 'Beyoncé blip' in Sweden should remind investors that inflation could flare up again unexpectedly, Morgan Stanley says

• Investors need to be wary of US inflation flaring up again as it did in Sweden, Morgan Stanley said Sunday.
• Swedish inflation cooled less than expected in May – with some economists blaming that on a so-called 'Beyoncé blip'.

Investors need to remain wary that US inflation could suddenly flare up again – and Sweden's "Beyoncé blip" shows how that could happen, Morgan Stanley has warned.

The bank's global chief economist Seth Carpenter said in a note to clients Sunday that prices could unexpectedly soar again later this year, because until recently COVID had still been stifling demand in certain sectors.

He pointed to Sweden – where Beyoncé's Renaissance World Tour started last month – as evidence that the US Consumer Price Index could soon give markets a nasty surprise.

The Nordic country "demonstrates how much residual pent-up Covid demand there can be, especially in services, and how it can show up where you least expect it," Carpenter wrote.

Last week, Sweden reported higher-than-expected inflation of 9.7% in May, with soaring hotel and restaurant prices fueling the surge.

Some economists have argued that Beyoncé's tour led to the CPI beating forecasts, with members of the Beyhive swarming hotels in the country's capital, Stockholm.

"Beyoncé is responsible for the extra upside surprise this month," Danske Bank economist Michael Grahn told the Financial Times. "It's quite astonishing for a single event. We haven't seen this before."

US economic data released Tuesday showed that inflation cooled to 4% in May, which is believed to have solidified the Federal Reserve's decision to pause its rate-hiking campaign the following day.

But investors shouldn't write off further tightening later in 2023, according to Morgan Stanley – with the Beyoncé blip serving as a timely reminder that inflation could unexpectedly flare up.

"We should not be surprised if hikes resume when data do not cooperate," Carpenter wrote. "The Beyoncé effect should keep us from getting too complacent."

Read more: Beyoncé single-handedly increased inflation in Sweden, economist says