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CPI Prints Cool But Fed Likely to Make Another Policy Error in July

CPI Prints Cool - InfraCap Weekly Commentary

New York, NY, July 12, 2023 (2 Min Read) ~ Headline inflation came in at .2% for the month and 3% year-over-year. CPI-U core was in line at .2% M/M and 4.8% Y/Y, while the shelter component still remained elevated, up an annualized rate of almost 5% and 7.8% Y/Y despite the fact that housing prices and rents are down year-over-year.

CPI-R, which utilizes housing prices to estimate shelter, was up .3% for the month but only 1.0% Y/Y. We believe PPI will print cool tomorrow and be close to zero, year-over-year. (Click to see updated InfraCap CPI analysis for the month)

Inflation peaked in June of last year. This Fed utilizes the discredited Phillips Curve policy framework to predict inflation, which resulted in it being at least 12 months behind the curve on addressing inflation.

Consequently, the Fed is likely to commit yet another policy error by raising rates in July, notwithstanding dissent from governors such as Austan Goolsbee who rejects the Feds myopic focus on the labor market and wages as the key driver of high inflation. We do believe that the Fed will be forced to capitulate on its “entrenched” theory of inflation in September by pausing rate hikes as inflation data continues to decelerate and the economy continues to slow.

We have raised our year-end target, established in December 2022, from 4,500 on the S&P to a range of 4,500-5,000, as inflation continues to decline and an AI boom continues to fuel the stock market and increases economic activity. (Click to see July Economic Outlook Report)



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