The big market/economic news this week was the Consumer Price Index.
If you were pro-Grandpa, you focused on the month over month figure of 0%, which Grandpa himself gloated about; if you were anti-Grandpa, you focused on year over year, which was 8.48%. Below, find the y/y chart: it shows the worst inflation since the early 80s. The m/m number at 0% definitely showed some modest progress in controlling inflation – but it will take a dozen of these 0% months, one after the other, to tamp down the inflationary fire already burning. It is like getting a good grade on your quiz this month, after getting bad grades on your quizzes for the past 11 months. Just one good mark by itself isn’t going to fix the problem.
So, how close was the CPI measure to the real inflation rate? My favorite indicator – FRED:PPIACO – fell (m/m) by 3.15%, a very strong move down, while the y/y change fell 5.37% to 17.16%. That’s some good progress. So, I’m calling the reduction in inflation both significant and confirmed by Producer Price Index, although PPI is still up 17% y/y which is the worst since just after Nixon took us off the gold standard, so there is a lot of work still to be done. But, according to the PPI, inflation definitely did decline.
When the 0% m/m CPI news hit at 08:30 Wednesday, equities promptly shot higher in response. For the week, equities were up 3.26%, a reasonably strong move, and that was a new cycle high for equities. Crappy debt also moved higher [+1.29%], as did copper [$0.12 +3.28%]. These rallies are all indicators of “risk on.” The Grand Pivot thesis seems to be front and center, with the thought being: surely the Fed won’t raise rates any further with inflation now completely under control? Right! Currently, the futures markets aren’t quite there yet; they are projecting a 50 bp increase at the Fed meeting in September, and another 50 bp increase at the meeting in November to 3.25%. (Source) So, some optimism, but no actual Pivot just yet.
How does this match up with all the dreadful recessionary news out of Europe? Dry rivers, absurdly expensive electricity, French nuclear reactors with ratty pipes (convenient timing, that), barges that can’t transport product (see: “dry rivers”), prospects of “No Industry For You, Germany!” this winter due to projected natural gas shortages – Chris has catalogued (Source) all this stuff, and it sure looks like an approaching EuroIndustrial Götterdämmerung – the Twilight of Europe.
by chuck-in-belize 
