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5 thoughts ahead of August CPI (9/13) = inflation cooling, potentially falling like a rock

The most important event this week, in our view, will be August CPI (9/13). Hopefully (we expect) this will show that inflation in the US indeed peaked in June 2022:

  • consensus looking for -0.1% MoM (or -1.2% annualized) and core +0.3% (+3.6% annualized)
  • the unknown remains the pace at which inflation will decline
  • consensus and even Fed generally view this as "gradual" and thus, expect policy to remain tight for longer
  • but as our analysis has shown, inflation, once it peak, tends to "fall like a rock"
  • thus, the upside surprise, if there were to be one, is that August CPI shows larger weakening in inflation
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Stocks have shown resilience in the past week, and part of this is attributable (in our view) to the market's recognition that inflationary pressures are cooling. In fact, we have 5 observations heading into this August CPI print (9/13), which hopefully provides context to the report:

42% of CPI basket already "deflating" from peak, but there is a lag before it shows up in YoY declines5 of 9 regions of the US saw outright "deflation" in July CPI (month-over-month)Many CPI components that had strong inflation early in 2022 are cooling = transitoryRent increases are slowingJPMorgan economists posit that 1Q and 2Q GDP will ultimately be revised higher = further disp...

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