To The Moon

CPI and market expectations

CPI or consumer price index is a conundrum. It is used as a rough gauge to loosely if I may put it measure demand versus supply in the market. And henceforth other than the big headline number (CPI) used to generally quantify inflation as a whole, other parameters are used to narrow down into specific sectors to really gauge the health of the economy. Hence the economists have came up with CPI excluding food and oil as an example and core inflation as an example. There is even a newer term called super core inflation to narrow down into essential necessities that people absolutely need and cannot do without and therefore is important so as not to disclude the common people.

Ok so back to the topic. Will the headline data go down? I believe inflation might reaccelerate in the near term. Why? Firstly, energy prices have crept up in the recent weeks and those increases are yet to be reflected in the numbers. Food prices except for wheat have been trending up. If wheat prices had not been suppressed, inflation might probably be higher. And the thing is wheat prices seem to be basing. As such, if wheat prices behaves and don't trend up, inflation might be contained just a bit more. But if they start creeping up, then I guess we have to dig in for that coming spike. 

Labour market are surprisingly strong still so the consumers might still feel ok to pay more for goods and services. Hence, the rate increases are yet to filter through. And it is important to note that, these data are not linear. More often than not, recession will hit suddenly. And before you know it, the market has tanked first. Markets tend to sniff out these events before data shows up. Hence why it is important to keep track of price actions in the markets to feel the pulse of the economy as it beats. 

So to sum it up, many are expecting inflation to continue trending down and hoping for a soft landing. However, as we have seen many a times, that is usually a prelude to that recession. And I believe this time around, it is no different. Hence the need to be cautious.

So I am expecting inflation to be sticky in this stubborn growth environment. 

Disclaimer: Please kindly do your own due diligence as this is a sharing article and in no means financial advise. I am just sharing my opinions and thoughts.

Thanks for reading my commentary. Hope it helps!

Stay safe! 😊

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