Flippening Watch
Inflation Eases, Markets Rip
The collective world briefly exhaled this week as inflation showed its first signs of cooling in nearly a year. On Wednesday, CPI surprised to the downside, as energy prices showed a month-over-month (MoM) decline for the first time since April.
Topline CPI was 8.5%, below the consensus forecast of 8.7%, and lower than the 9.1% figure in June. The CPI basket was unchanged MoM, as the total energy basket came in 7.6% lower than June, while food continued to climb (up 1%) and prices for all items less food and energy were 0.3% more expensive over the same period.
This downside surprise furthered a red-hot risk-on rally in both traditional and crypto markets.
Interestingly, despite all the talk about energy being the only constructive figure in the granular breakdown of the CPI basket, we have actually seen CPI less food and energy slow considerably – this being the 4th consecutive month of decline in YoY rate increases.
The market has since pivoted slightly to a slightly dovish stance following the print, skewing towards a 50-bps hike in September, compared to the 75-bps rate hike being priced in just last week.
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