Jul'23 CPI Update

The inflation story is falling apart. But that's not the interesting part because everyone knows it. The actually interesting part is that hot inflation prints will from now on be bullish signals.

You might have noticed that I have not covered the inflation theme much in recent months. The reason is that I feel like I have gained sufficient clarity on this topic and it is now simply a question of waiting for the inevitable scenario to play out.

My message on this matter has been as clear as it has been consistent: Inflation has been a non-issue over the past 12 months. Over time, this will be revealed in declining year-over-year CPI prints. This will drive a normalization of monetary policy, which will unleash liquidity to fuel the new bull market.

I have been saying that since last year when it was not yet fashionable to say.

Sep'22 FOMC Digest

Dec'22 Inflation Update

And I have said that in my last update in May.

May'23 CPI Update

The problem however is that the Fed is still on a roll with their tightening campaign. Just weeks ago, they hiked to 5.3%, the highest policy rate in 16 years. The first rate cuts are not expected before mid 2024 and there is even a decent chance that we will see additional hikes before then.

This brings up a relevant question: Is there something the Fed sees that we don’t? Is the disinflation autopilot malfunctioning? To answer this question, I will take a fresh look at recent inflation data today.

I will also contextualize the inflation theme into the current market environment. And I will be making a bold call: Hot inflation prints are not bearish signals anymore. They are in fact the exact opposite. As investors, we should not just be indifferent to them. We should want more of them.