Recently, the US market has been on a tear especially after the release of June CPI data that showed 12 months inflation moderating to 3%, the lowest year on year increase in 2 years. A deeper look at the June CPI days, showed softer food prices contributed to the soft data. This is underpinned by lower oil prices compared to a year ago, where oil prices were over $100
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In recent weeks, oil prices have risen to a 3 months high and food prices have risen, driven by collapse of the Black Sea grain deal & india curbing rice export. These two price increases will reverse the factors that lead to the soft June CPI numbers. In fact BoA believes that June CPI print maybe the last for favorable YoY effect and project that inflation may rise again ( see their projection in the attached chart).
Investors need to be wary if the current Goldilocks scenario of softening inflation & strong employment will continue. It's not the time to rush into the hype.
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