Inflation is showing early signs of picking up again in the U.S., and if it accelerates from here, U.S. high-yield issuers could see a surge in defaults, according to Bank of America Corp. credit strategist Oleg Melentyev, Bloomberg News reported. Persistently rising price levels could weigh on companies’ earnings, even before accounting for rising interest costs. A 3% inflation rate is easily manageable for most junk-rated corporations, but 4% would pressure them, while 5% inflation “could cause a full-scale default wave,” Melentyev wrote in a note on Friday. That wave could bring cumulative high-yield defaults to 15%, according to Melentyev, a jump from current levels. In the last 12 months, about 2.5% of US high-yield debt defaulted, according to Fitch Ratings. A persistent 4% inflation rate could bring cumulative defaults to 10%, Melentyev wrote. Overall inflation was 3.7% last month compared with August 2022, but the core consumer price index, which excludes food and energy costs, rose 0.3% last month from July. That marked the first month-over-month acceleration since February, Bureau of Labor Statistics data showed Wednesday.
