Flippening Watch

Aug 12, 2022 • 8 Min Read

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.

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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.

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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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