The latest inflation report was much better than expected and the next question becomes; will it be ‘too good’ and set the bar too high for the next report?
I’ve been watching closely and I think we’re headed to another shockingly low number.
The last headline inflation number was announced at 8.5% YoY, down from 9.1% the month previous, and with the optimistic estimates of 8.7%.
During this time, up until the last day before the data release, the Cleveland Fed nowcast estimated July’s inflation at 8.82%, so they likely overestimate figures.
I’m not sure what August’s forecast is, if somebody knows it please chime in, but my point is this: Cleveland Fed nowcast for August is currently at 8.38% and dropping daily. You can see a screenshot of their daily adjustments here: https://imgur.com/a/jL0cfKG
Another huge factor in this is oil prices dropping, heavily affecting inflation numbers. The only reason oil went down was because OPEC increase of oil supply; something that we’ve recently agreed to continue and even push harder. Notably, not all countries met OPEC expectations on the increases in the last month, so there’s even more room for improvement than this second increase implies.
My only concerns are that the market might be scared by a potentially inevitable 0.75% increase by the Fed, as they look past the fluff and tackle real inflation. Regardless, we’re not worried about a 1% increase anymore, inflation numbers will be very good on the next report, and there’s a chance (though unlikely) that the Fed does a 0.5% increase instead of a 0.75%, which would be insanely bullish for markets.
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