May CPI obvious focus but “half full” gaining incrementally

As many of our clients have remarked recently, every economic data point is really an inflation report. Repeating the obvious logic: trajectory of inflation impacts Fed rate path. Thus, every report is an inflation report.

But as we have discussed previously, there are many emerging signs that economic activity/inflation is potentially slowing faster than expected.

  • this week, US mortgage applications plunged to lowest in 22 years.
  • for reasons discussed below, this portends a dual hit to home price (negative shock) and possibly 60% drop in mortgage banking employment
  • fertilizer prices are down 34% from peak
  • there are signs that corn, cattle and wheat prices might be plateauing
  • in the meantime, the global supply chain strains seem to be easing
  • this points to possible accelerated declines in goods pricing
  • of course, oil remains elevated, but oil is almost becoming a barometer for the Russia-Ukraine war and as long as hostilities escalate, oil is higher
  • but this is somewhat binary — cessation of hostilities likely dramatically impacts inflation perceptions
All in all, this argues that the “half-full” view regarding both Fed trajectory and equity markets is gaining credence. That is, the 20% decline already ha...

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