1) what americans interface with on a daily basis is gas and food prices. with gasoline prices down -18% and the broad energy basket down -10% since june. there's a case to be made that inflation has likely peaked. sentiment play a role in the inflation narrative, and if that begins to change (due to falling gasoline prices), that could trickle down into other parts of the economy. also, take into account that oil is down ~30% since june. oil literally touches every part of the economy, directly via energy or indirectly via hydrocarbons. oil and CPI is historically correlated.
2) Powell told us few months back, that they're watching the price at the pump. if that comes down drastically, the Fed's would likely take their feet of the pedal. also, there's a correlation between lower gas price and winning elections. with mid-terms around the corner, prices around the pump will have to go lower so the democrats can remain in power.
3) if you ask SME's inflation has peaked. recent NFIB released this week has fallen off a cliff since june. historically, NFIB has a pretty tight correlation with CPI. can't post charts here, although Andreas Steno Larsen has one up on Twitter.
direction is one thing, while rate of change is another (and probably the most important). i don't see a scenario where CPI goes to 2% anytime soon, or going above 9.1%. the longer CPI remains below 9.1% (and moving lower), increases the odds that it has peaked.
the analysis on the housing market is brilliant 👍👏
Solid perspectives, Pascal. My only pushback would be that we might need to differentiate between a peak in headline inflation vs. a peak in underlying inflation dynamics. The point of the inflation analysis that I provided in this edition is to highlight that underlying trends are accelerating, despite falling energy costs.
It's key to remember that the Shelter component is roughly 33% of the CPI weighting. If the Shelter component lags the broader housing/rental market by roughly 16 months, I expect to see Shelter keep accelerating. That could keep headline (and core) elevated.
I'm somewhat of a Fed purist, so I tend to think that they aren't influenced by political incentives. While their mandate is bestowed by Congress, the Fed isn't beholden to Congress. Additionally, the Fed has zero influence on oil/commodity prices.
Glad to hear that you enjoyed the analysis of the housing market! Happy weekend, Caleb.
Keep looking at your graphs Pascal. I look at my currency in my wallet and inflation has not peaked. I agree with Caleb that underlying inflation dynamics are increasing. Inflation is an increase in currency supply. With the trillions the US government spends and with all the beer sickness money created, the fed has to raise the funds rate above the CPI to bring inflation back to a crawling pace. Until then expect inflation to keep running to new highs. Good work Caleb.
1) what americans interface with on a daily basis is gas and food prices. with gasoline prices down -18% and the broad energy basket down -10% since june. there's a case to be made that inflation has likely peaked. sentiment play a role in the inflation narrative, and if that begins to change (due to falling gasoline prices), that could trickle down into other parts of the economy. also, take into account that oil is down ~30% since june. oil literally touches every part of the economy, directly via energy or indirectly via hydrocarbons. oil and CPI is historically correlated.
2) Powell told us few months back, that they're watching the price at the pump. if that comes down drastically, the Fed's would likely take their feet of the pedal. also, there's a correlation between lower gas price and winning elections. with mid-terms around the corner, prices around the pump will have to go lower so the democrats can remain in power.
3) if you ask SME's inflation has peaked. recent NFIB released this week has fallen off a cliff since june. historically, NFIB has a pretty tight correlation with CPI. can't post charts here, although Andreas Steno Larsen has one up on Twitter.
direction is one thing, while rate of change is another (and probably the most important). i don't see a scenario where CPI goes to 2% anytime soon, or going above 9.1%. the longer CPI remains below 9.1% (and moving lower), increases the odds that it has peaked.
the analysis on the housing market is brilliant 👍👏
Solid perspectives, Pascal. My only pushback would be that we might need to differentiate between a peak in headline inflation vs. a peak in underlying inflation dynamics. The point of the inflation analysis that I provided in this edition is to highlight that underlying trends are accelerating, despite falling energy costs.
It's key to remember that the Shelter component is roughly 33% of the CPI weighting. If the Shelter component lags the broader housing/rental market by roughly 16 months, I expect to see Shelter keep accelerating. That could keep headline (and core) elevated.
I'm somewhat of a Fed purist, so I tend to think that they aren't influenced by political incentives. While their mandate is bestowed by Congress, the Fed isn't beholden to Congress. Additionally, the Fed has zero influence on oil/commodity prices.
Glad to hear that you enjoyed the analysis of the housing market! Happy weekend, Caleb.
Keep looking at your graphs Pascal. I look at my currency in my wallet and inflation has not peaked. I agree with Caleb that underlying inflation dynamics are increasing. Inflation is an increase in currency supply. With the trillions the US government spends and with all the beer sickness money created, the fed has to raise the funds rate above the CPI to bring inflation back to a crawling pace. Until then expect inflation to keep running to new highs. Good work Caleb.