Last week’s Consumer Price Index inflation data noted elevated levels of inflation but also some signs that inflation may be near to peaking. Financial conditions (stock market selloff, higher mortgage rates, higher inflation rates) are likely causing demand to soften.
The bad news is that both Core CPI and PPI inflation data still looks elevated. Core CPI did fall to 6.1% YoY from 6.4% YoY. Core PPI inflation metric fell to 8.8% YoY from 9.5% YoY. Falling is better than rising but these levels are still elevated and a headwind for both the market and the Fed. Energy prices also still elevated and not declining. Natural gas, gasoline prices at the pump, and WTI oil per barrel all elevated and firm.
The good news is that financial conditions have dramatically tightened WITHOUT the Fed doing much/anything. Headline CPI was +.33% MoM – the smallest increase MoM in 8 months. Copper prices, corn, and wheat all elevated but looking like they want to start to decline. Unemployment claims have quietly ticked up over the past month and the growth in money supply is coming down quickly.
All this to me looks like broad inflation pressures likely in the process of peaking. I like the 10Y UST today a lot more today at 2.91% than last Monday at 3.21%. Economic demand about to go down and with it inflation.
Richard Barrett
Chief Investment Officer
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