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
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...