Following the CPI preview I published yesterday, I provide this short update in order to assess how the key points that I highlighted evolved in the latest data. Broadly speaking, there were plenty of positives to draw from the latest CPI report.
As I have been stating for months, inflation likely peaked in June. My confidence in this stemmed from the initial flatlining, and now consistent outright MoM declines in the M2 money supply. The main problem remains the fact that the CPI and PCE BOTH use a lagging measure of shelter costs, which greatly increases the risk of the Fed overtightening and causing a severe recession - let’s dive in!
1) The major deceleration in durables prices quickens - on track to be less than 2% YoY by December
The first key thing to note from the October CPI report is that the ongoing deceleration in durables prices has quickened, with the second biggest EVER MoM decline in September being followed by a MoM change of -0.6% in October.