Is Inflation Actually Slowing in the US Now?

TL;DR

The recent US inflation data shows a break in the trend of declining prices, but there are reasons to remain cautiously optimistic. Global liquidity levels have improved, providing support for equity markets.

Transcript

foreign signals it's been a tremendous week in global macro and we have a lot of contradicting trends when it comes to price pressures globally the first version of Steno signals touched upon the disinflation that was quite clear at the time in the U.S economy prices were slowing we had evidence from the inflation reports throughout Q4 of slowing i... Read More

Key Insights

• 📈 The recent US inflation data shows a departure from the trend of declining prices, but there are factors suggesting that some of these price increases may be temporary or not fully representative of the actual trend.
• 🌍 Global liquidity levels have improved, with liquidity injections from central banks in China and Japan, as well as temporary effects from the US and Europe.
• ☠️ While equity markets have performed well, there is a risk of higher interest rates and potential volatility if the new governor of the Bank of Japan decides to amend the yield curve control program.
• ☠️ The terminal rate of inflation in the US economy is likely to be around three and a half to four percent, higher than the Federal Reserve's target of two percent.
• 🥺 The NFIB price plan survey indicates that inflation is expected to decline to a level around three and a half to four percent, leading to repricing and higher interest rates.
• 🌐 Liquidity has improved in global risk markets, including equity markets and the US treasury market.
• 🤑 Credit is flowing again in China, with the M2 measure of money supply showing almost 30 percent growth year over year, indicating liquidity is increasing rapidly.

Questions & Answers

Q: How has the recent US inflation data deviated from the previous trend of declining prices?

The recent CPI report showed an increase in inflation in many categories, such as energy and housing costs. This is a departure from the trend of declining prices seen in the previous quarter.

Q: What are some reasons to remain optimistic about inflation in the US?

While the recent inflation data may suggest a break in the declining trend, there are factors that indicate some of these price increases may be temporary. For example, housing costs may decline in the future due to the use of surveyed rents instead of observed rents in the CPI. Additionally, the decline in medical services prices may be due to seasonal adjustments.

Q: How are transportation services and wage pressures connected in the US economy?

Transportation services, which reflect wage pressures among blue-collar workers, have remained high and are leading to wage re-acceleration. This is in contrast to other signals of wage formation, suggesting the Federal Reserve may need to consider this when making monetary policy decisions.

Q: How do global liquidity trends impact equity markets?

Global liquidity levels have improved, with liquidity injections from central banks in China and Japan, as well as temporary effects from the US and Europe. This has had a positive impact on equity markets, despite concerns about higher interest rates.

Summary & Key Takeaways

• The recent US Consumer Price Index (CPI) report showed an increase in inflation in various categories, including energy and housing costs.

• However, there are factors suggesting that some of these price increases may be temporary or not fully representative of the actual trend.

• Global liquidity levels have improved, with liquidity injections from central banks in China and Japan, as well as temporary effects from the US and Europe. This has positively impacted equity markets.