The Fed’s preferred gauge of inflation, which is the Commerce Department’s personal consumption expenditures measure, hasn’t matched the central bank’s 2 percent goal since April 2012.

Oil Rally

Oil prices have rallied about 50 percent since Feb. 11 after plunging to the lowest in 12 years.

"Near term there are still concerns about inflation or the lack thereof, but I think clearly over the longer term these expectations are too low,” said Brian Rehling, chief fixed- income strategist at Wells Fargo Advisors, which upgraded TIPS to favorable in January. “If you think of the impact of energy on inflation, which can be meaningful, that continues to provide upward pressure over the long run. I think that’s really a factor in what the market’s thinking about and trading on now."

While Pimco has said the market was overreacting to the drop in oil prices and that inflation would resurface, traders have remained skeptical a robust jobs market will translate into wage and price gains in the near term, even as the longer-term outlook improves.

“Given the upside print in CPI and the dovish Fed outlook, we continue to favor long-end break-evens,” Morgan Stanley economists and strategists led by Ellen Zentner wrote on Wednesday. Still, they were more skeptical about near-term moves in the Fed’s preferred gauge, saying they believe “core PCE topped out in January and will move lower into the summer.”

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