US #inflation: what you NEED to know
1) Federal government deficit shrinking to its pre-COVID level and tightening from the #Fed = no growth in the M2 money supply.
2) Flatlining M2 means that without another surge in energy prices, YoY CPI growth likely peaked in Jun '22.
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1) Federal government deficit shrinking to its pre-COVID level and tightening from the #Fed = no growth in the M2 money supply.
2) Flatlining M2 means that without another surge in energy prices, YoY CPI growth likely peaked in Jun '22.
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3) Despite stagnant M2, YoY #CPI growth is unlikely to fall considerably before the end of '22 due to relatively low prior year comparables. This is why YoY CPI growth remained high despite a MoM decline in Aug. Relatively low comparables remain to be cycled in Sep and Dec.
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4) Nevertheless, the impact of flatlining M2 is being seen in durables prices, which have decelerated sharply from their Feb '22 peak. While the YoY rate may rise in Sep due to a negative comparable, the YoY rate is set to decline significantly from Oct '22 - Jan '23.
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5) Stagnant M2, higher interest rates, and a weakening economy should see a slowing/decline in real estate prices and rents BUT the CPI measures changes in rents with a lag. This has seen the CPI significantly understate inflation since May '21, but this could soon reverse.
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6) Should spot market rents continue to decelerate, the potential overstatement of inflation in the CPI due to its lagging measurement of rental costs, raises the risk of material Fed overtightening and a severe #recession.
View my full report here: economicsuncovered.substack.com
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View my full report here: economicsuncovered.substack.com
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