Breitbart Business Digest: Goldilocks beats the bears


Disinflation became widespread in June

The Bears were beaten Goldilocks this week.

Consumer Price Index (CPI) report for June prices are rising at a much slower rate than expected, headline and core inflation increased by just 0.2% in the month. Year-over-year growth in the headline CPI fell to 3%, partly because some of last season’s price gains faded from the year-over-year comparison. Annual growth in core CPI fell to a still very strong 4.8% from 5.3% last month.

There is reason to expect that this will hold. The April and May reports included a significant increase in used car prices, which is due to the increase in wholesale used car sales at the beginning of the year. Today, the wholesale market is telling the opposite story: prices are falling as a combination of large inventories of new cars, tight financing standards and high interest rates dampens demand. Prices of used cars It fell 0.5% in June and is expected to continue to decline over the next few months.

Used Cars for Sale at a Doylestown Dealership February 4, 2022. (AP Photo/Matt Rourke)

Another reason to believe that inflation may remain low is that the data for June a expansion of inflationary trends.

Bank of America Michael Gapen Three-month annual inflation shows that the share of consumer goods categories above 5% has decreased to 29%. Three-month annualized core non-housing services inflation, Fed Chairman Jerome Powell’s preferred measure, slowed.

THE producer price index (PPI) It was sweeter than expected. Core PPI and core PPI came in at just 0.1%. “Core” excluding commercial services, as well as food and fuel prices, was also up 0.1% on the month.

“Processed goods for intermediate demand” is a category a good indicator of cost pressures in the supply chain. These consider the prices companies pay for the products they use to make final products sold to households, the government, and exports. Prices here decreased by 0.6% in a month. Core intermediate goods, excluding food and energy, fell 0.4%, the first monthly decline since falling -0.2% in March. For most of the year, prices of key intermediate goods rose, if at all the beginning of the trend of easing cost pressuresthat would be nice.

Golds wrapped in a dress for perfect deflation

The market reaction was euphoric. Almost everywhere, from commodities to emerging markets to global bonds to the S&P 500, rallied as falling inflation amid a still-tight labor market seemed to mean a “soft landing” and “perfect inflation” were once again a real possibility.

Bank of America’s Michael Hartnett described it this way “Golden castles raise us bears.”

“Goldilocks Now Manages Risky Assets”, Hartnett wrote in a client note Thursday evening.

Hartnett, however, remains bearish. His post warns that investors will pile so much money into stocks valuations are at risk if inflation turns out to be tighter Judging by June’s numbers, and whether doomsday central bankers will continue to raise rates.

According to him, this year inflation will be “transient”. and rates will continue to rise. The rate cut expected by bull markets this week won’t happen without a “very hard landing.”

Indeed, by the end of the week, some anxiety seemed to have seeped into the markets. THE defunct bond market The University of Michigan reports that consumer confidence has increased. This has caused concern among investors maybe the porridge is “too hot” not “correct”.

Key figures were mixed, and Waller is hawkish

Hartnett may be right. Federal Reserve Bank of Cleveland Average CPI decreased by 16% for the second month in a row it came with 0.2 percent. We take this as a bit of a mixed message. It shows that Inflation is down, but not likely to go down. Similarly, the median CPI was 0.4% for the fourth consecutive month, indicating a lack of progress. For us, this indicates an increased risk of a rebound in inflation at the end of this year.

as Fed Governor Christopher Waller All that happened, he recalled in a speech on Thursday evening.

“Yesterday we received new data on consumer price index (CPI) inflation. Core inflation halved to 0.2% in June after 5 consecutive monthly readings of 0.4% or higher. This is good news, though a data point does not create a trend. “Inflation slowed briefly in the summer of 2021 before it got worse, so I need to see that improvement before I can be sure that inflation has slowed,” Waller said.

Federal Reserve Governor Christopher Waller attends the Fed Listens event on September 23, 2022 in Washington, DC. (Getty Images via Al Drago/Bloomberg)

Waller made this very clear he supports a hike at the Fed’s July meeting and I think he might do another hike after that.

“I understand Two more increases of 25 basis points In the remaining four meetings of this year, we are in the target range, which is necessary to keep inflation at our target level,” he said.

Perhaps the most interesting part of Waller’s speech was his reaction to the idea that the Fed may not need to do much more to raise rates as the fallout from last year’s hikes continues. spread through the economy with long delays. Instead, as the title of his report suggests, Waller thinks “Big shots move fast” and already passed through the economy. Further progress in inflation may call for further tightening. He said:

What is the result of this economic study? The effects of tighter monetary policy last year led to market interest rates falling more quickly than usual due to announcement effects, and on top of that, we had interest rate changes that were more dramatic and faster than in the past, leading to a faster adjustment in the behavior of households and businesses. These two points suggest that the consequences of the major policy changes we adopted last year should affect economic activity and inflation much faster than generally expected.

If we assume that most of the effects of last year’s austerity have been absorbed into the economy, then we cannot expect a significant slowdown in demand and inflation after this austerity. I believe that the policy tightening we have undertaken this year has been appropriate, and that further policy tightening will be necessary to bring inflation back to the 2 percent target. The suspension of the fare is raised now, as you face long and variable delays, you may find yourself standing on the platform waiting for the train to leave the station.

The market is skeptical of a second hike after the July meeting and has more or less dismissed the idea of ​​further hikes in the new year. In our view, a fair reading of Waller’s comments suggests further upside is possible. will past Fed hikes no longer have an inflationary effect.

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