The above % change chart of CPI is misleading and is the data that Biden referenced in his now infamous address where many thought he was simply “doing a Joe” and forgetting where he was again. In fact, the % growth of CPI in July was at 0%.
8.5% inflation remains a very worrying figure and is a long way off the Fed’s 2% inflation goal. Various Fed speakers have since signalled their continued concern about the data. Fed’s C. Evans said on the 11th that “inflation is still unacceptably high and the Fed will continue to hike rates through this year and into 2023.” Evans is normally one of the most dovish (accommodative) of the current Fed – so this is a strong statement. N. Kashkari also gave comments of a similar nature. Therefore any hopes of a wider market reversal and a return to the bull market euphoria we all love and miss so very deeply were stopped dead in their tracks.
The Fed is looking to battle inflation further and we expect 75-100bps interest rate rises at the September FOMC meeting regardless of potentially slightly lower CPI prints in the runup. Even if prints are lower, it will not be by a significant enough margin for a wider policy pivot. As we enter winter and energy supply shocks alongside the Russian war continuing in the East, we will likely see a sharp uptick in the components of CPI.