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Peak Inflation Watch: Is This Time Different?

By James PicernoMarket OverviewJun 23, 2022 01:56PM ET
www.investing.com/analysis/peak-inflation-watch-200626189
Peak Inflation Watch: Is This Time Different?
By James Picerno   |  Jun 23, 2022 01:56PM ET
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The question of when inflation will peak consumes financial and commodity markets, and with good reason. When pricing pressure finally ebbs, the pressure on rate hikes and the headwinds for the economy will ease, if only on the margins. But every thousand-mile journey has to start somewhere.

Ed Yardeni, president of consultancy Yardeni Research, predicts:

“We’ve got to see a peak in inflation before the [stock] market will be substantially higher,”

Some economists are optimistic that a peak is near. The Fed’s increasingly aggressive rate hikes, combined with a sharp slowing in money-supply growth offer reasons for hope, a number of analysts say.

One way to keep tabs on hints of inflation’s peaking (or not) is to monitor the absolute change in the inflation indexes. On this front, there are clues that a peak may be near, but some indexes suggest otherwise.

Let’s start with what I’m calling Inflation Bias Indexes. The methodology is taking the underlying index, calculating its one-year change, taking the monthly difference and then transforming the results into standard deviations around the mean.

In the first chart, headline and core estimates of the Consumer Price Index (CPI) through May suggest that a peaking process is already underway.

Encouraging, although we’ve been here before only to find it was a false dawn. Is this time different? Only time will tell.

CPI Chart
CPI Chart

Zooming in on the data highlights that the reversal in pricing pressure appears to have legs.

CPI Monthly Chart
CPI Monthly Chart

As a reality check, let’s check how several alternative measures of inflation compare. A pair of so-called “stick price” estimates of CPI from the Atlanta Fed, along with the Cleveland Fed’s median CPI and 16% Trimmed-Mean CPI.

Alternative CPI Monthly Chart
Alternative CPI Monthly Chart

On these fronts, there’s still room for doubt about peaking inflation. Notably, the overall profile is mixed, suggesting that it’s premature to start celebrating inflation’s peak.

Let’s see if the June CPI numbers change the outlook.

Peak Inflation Watch: Is This Time Different?
 

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Peak Inflation Watch: Is This Time Different?

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Comments (6)
Steve Bojo
Steve Bojo Jun 24, 2022 2:28AM ET
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Not a chance. It will be up YOY on next report
Franc Fil
Franc Fil Jun 24, 2022 1:52AM ET
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They haven't been aggressive at the Fed... mostly jawboning. Taylor Rule Utility on Atlanta Fed website says we have at least 700-800 bps to go. This is top of first inning and no outs. Powell is pitching in a big jam.
Adamo Nals
Adamo Nals Jun 24, 2022 1:40AM ET
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When you have an administration at war with fossil fuel and oil companies no matter what even with this little pullback of 20% in oil, which should never of happened. Oil goes higher and inflation goes higher because we have an administration at war with fossil fuel. They are ideologues and that’s all it is. So no matter what anyone says we are only in the early innings of inflation. It took four years from 77 to 1981 to bring down inflation. This will get worse before it gets better. The markets have not even close to bottomed. Maybe around 3000 we’re lucky. I would be buying SPY PUTS and especially as much of the energy sector as you can afford on this pullback
Joe James
Joe James Jun 24, 2022 1:31AM ET
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peak inflation prophecies are a joke. whenever economy is good, every analyst says "follow the data" but when we have a bad data they always want to look past it. What reason do we have to not believe inflation could go down for the next 2 months but back up for the fall? or the opposite could happen. Nobody knows, but always a bullish tilt because pros always need a useful idiot to dump on when things go bad
la popeye
la popeye Jun 23, 2022 6:34PM ET
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you re right. no celebration except gov which see its debt shrinking...
Zman Trading
ZmanTrading Jun 23, 2022 5:14PM ET
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