Insana says that the obvious case is that inflation has passed

Since the inflation debate began to intensify when the pandemic “ends,” I have taken the view that inflation, as the Federal Reserve first suggested, will be temporary.

Transiency is never intended to suggest that an inflationary flare will last only a few months.

Historically, regardless of the 1970s and 1980s, postwar/pandemic inflation lasted a few years before dropping significantly and sometimes reverting to a phase of deflation.

There is a body of data to support that view even though the Fed and many other economists are, instead, constantly worried about the emerging wage/price spiral.

The data, so far, has simply not backed up those concerns and has convincingly bolstered the case for disruptive, but temporary, explosive inflation, like we have seen in the aftermath of the events. other catastrophic events, such as major global conflicts, and/or previous pandemics.

Let’s look at the supporting data.

First and foremost for all consumers is the consumer price index.

The CPI, a measure of the basket of items most frequently purchased by consumers, housing, food, energy, apparel, etc., has not only stopped increasing but also, since yesterday’s reportshowed the first monthly decline since inflation broke out.

While inflation rose 6.5% year-on-year, consumer prices over the past six months have been growing at an annual rate of less than 2%… in line with the Fed’s target.

Core consumer prices have also fallen sharply and rapidly from their peak in mid-2022.

But wait a minute!

The Fed’s Preferred Inflation Measure so-called core PCE(personal consumption spending deflation) has also slowed to about 4%, still well above the Fed’s target but down sharply from its post-pandemic peak.

Over the past three months alone, annual core inflation stood at 3.14%, down from 4.5%, on a six-month basis, just before. All other inflation measures have followed similar trajectories as of June 2022, although some components, like havens, have taken a hit.

The data used to calculate house prices and apartment rents tends to be old and outdated.

Newer measures are showing that like energy, food, manufactured goods and raw commodity prices, housing costs have fallen and are likely to fall much faster than official data shows. Just look at lumber prices, which have dropped to just over $400 per thousand feet of plank from as high as $1,500.

While the Fed has yet to acknowledge these developments, financial markets have.

Inflation expectations, as measured by the so-called “break-even point,” have fallen. Measures of the Federal Reserve of St. Louis on expected inflation five years from now, as measured by bond market activity, has fallen rapidly, from a peak of 3.59% on March 25, 2015. 2022 down to 2.21% on Thursday.

The 10-year breakeven ratio also fell similarly.

My friend and colleague, Tom Lee, of Fundstradt, point out that 59% of the components of the CPI are actually deflationary or bearish, which suggests that inflation will be more adjusted in the coming months.

We have yet to see a major drop in service sector inflation. However, airfares have come down and some service prices have followed suit.

Wage inflation, the Fed’s biggest concern lately, also censoredsuggests that the dreaded wage/price spiral is not an imminent threat to the economy.

While it is true that the U.S. labor market remains remarkably resilient during the most powerful rate hike cycle in modern history, layoffs are starting to accelerate while median earnings per hour, according to the most recent jobs report, rose 0.3% last month and has essentially been flat for the past five months, reflecting all inflation data collected since.

With the potential for inflation to pick up again, energy prices have recently picked up a bit as China reopened its economy after nearly three years of closure. Demand for goods and services from China could put upward pressure on prices.

However, China’s economy is more likely to export deflation as the country grapples with large unsold housing, a surplus of domestic holdings and a sharp decline in global exports. around the world.

The war in ukraineif not ended soon, could also have another negative impact on food and energy costs, but it’s not showing up in the data at all.

In fact, at least domestically, every market indicator points to fears of slowing growth rather than rising inflation, which the Fed has yet to acknowledge.

The spread between the 3-month T-Bill and the 10-year Treasury note, as of early Friday morning, was 1.1 percentage points. It topped 1¼ percentage points on Thursday.

That marked the deepest inversion of the yield curve since the terrifying days of the early 1980s when the US suffered a very deep “double depression”, caused by a very aggressive Fed. , which then also counteracts inflation, albeit at a much higher interest rate of inflation.

The market is not the only indicator that inflation has peaked, the data itself is making the case.

Inflation is dead. Long live inflation!