Have We Reached Peak Inflation?

TL;DR

The US CPI report suggests that inflation has peaked and is now on a downward trend, which is a positive development for the markets.

Transcript

good afternoon folks and uh welcome to the real vision daily briefing i'm andres dino from real vision sending to you live on the heels of the us cpi report the peak is in in inflation at least in my humble opinion and that is also what we've been told i think by various surveys over the past month and unless smes are not telling the truth then i g... Read More

Key Insights

• ❓ The decline in median CPI and sticky CPI indicates a significant decrease in inflation outside of an actual recession.
• 🥺 A sustained breakdown in inflation could lead to a soft landing for the economy and a possible pivot by the Federal Reserve.
• 💯 The 17 and 23-month rate of change for core PCE suggests that a decline in core inflation could be outside of the norm, but could still be beneficial for asset markets.
• 💰 The market positioning on the dollar and yen indicates potential unwinding of short yen positions, which could impact the overall dollar rally.
• 🫢 The yield curve could re-steepen if a soft landing occurs, but the interest rate shock experienced earlier could still negatively impact the economy in late Q4 or early Q1.

Questions & Answers

Q: Is inflation in the US peaking?

Yes, according to the US CPI report, both headline CPI and core CPI have shown a decline, indicating that inflation is peaking.

Q: What is driving the decline in headline inflation?

The big rollover in headline inflation is primarily due to a sharp deceleration in energy CPI, which has dropped by 830 basis points to 26.5% on a three-month annualized basis.

Q: What is the significance of the breakdown in core services inflation?

The decrease of 150 basis points in core services inflation to 6.7% is a positive sign on a momentum basis, suggesting good news for the year-over-year time series.

Q: How did the market react to the CPI report?

The market showed a positive reaction, with Nasdaq futures rallying by 2%. Equities, risk assets, and Bitcoin also saw a surge. However, the bond market experienced a decline in five-year breakevens and an increase in five-year inflation swaps.

Summary & Key Takeaways

• Headline CPI has decelerated, with headline CPI rolling over by 140 basis points to 9.2% on a three-month annualized basis.

• Core CPI has also shown a decline, with core CPI rolling over by 100 basis points to 6.6% on a three-month annualized basis.

• Core services inflation has decreased by 150 basis points to 6.7%.