Syz the moment

Rise in cost of ingredients to make pizza outpaces inflation. Bloomberg custom index shows olive oil price up almost 27%. Source: Bloomberg, HolgerZ

Economists polled by Reuters had projected an annual rise in the headline consumer price index of 8.2%, following May’s hotter-than-expected 8.7% reading, but annualized price rises continue to run well above the Bank of England’s 2% target. On a monthly basis, headline CPI increased by 0.1%, below a consensus forecast of 0.4%. Core inflation — which excludes volatile energy, food, alcohol and tobacco prices — remained sticky at an annualized 6.9%, but fell from a 31-year high of 7.1% in May. Source: CNBC

As highlighted by Tavi Costa / Crescat Capital, inflation tends to develop through waves. Just as base effects played a crucial role in reducing inflation rates so far this year, it does not mean that CPI might reach and stay at a low level. Indeed, while the macro environment today differs from that of the 1970s or 1940s, there are some underlying issues which could continue to drive inflation rates higher: ▪️ Irresponsible levels of government spending ▪️ Escalating deglobalization trends, which necessitate the revitalization of manufacturing capabilities in economies. ▪️ Wage-price spiral, particularly driven by low-income segments of the society ▪️ Ongoing supply constraints due to chronic

That's the longest down streak since 2009. Nominal retail sales increased 0.5% YoY vs. historical average of 4.7%. Source: Charlie Bilello

The avg expectation of 4.9% for the long term until 2026 is still high, Ifo said, though marginally below the 5% estimate in Q1. Lowest level of inflation expectation was recorded in Europe, yet economists do not expect the rate to return to ECB's 2% target by 2026. Source: HolgerZ, Bloomberg

Maybe not yet...United pilots could get raises of up to 40% under a preliminary deal, after similar agreements were made at Delta and American Airlines For the first time in many decades the labor force has the upper hand in negotiating across a broad swath of industries, and they're using it as much as they can. Bottom-line: The wageflation story isn't quite over yet. Instead, it is evolving. Source: Markets Mayhem, Wall Street Journal

The investment chief at one of the world’s top hedge funds has warned the US battle with inflation is far from over, and bets on a rapid series of interest rate cuts from the Federal Reserve next year are premature. Bob Prince, co-chief investment officer of Bridgewater Associates, said markets were wrong to assume the Fed will soon ease monetary policy. “The Fed is not going to cut,” he told the Financial Times. “They are not going to do what is priced in.” Pricing in futures markets indicates that investors anticipate one further 0.25 percentage point rate rise from the Fed’s current target range of 5 to 5.25 per cent by the autumn. Over the following 12 months they expect the central bank to reverse course, cutting borrowing costs six times to around 3.8 per cent by November 2024. “Inflation has come down but it is still too high, and it is probably going to level out where it is — we’re likely to be stuck around this level of inflation,” Prince said. “The big risk right now is that you get a bounce in energy prices when wages are still strong”, which could drive a rebound in inflation, he added. Prince, who oversees the Connecticut-based firm’s assets with co-CIOs Karen Karniol-Tambour and Greg Jensen, said he believes core inflation is likely to bottom out between 3.5 and 4 per cent, pushing the Fed to tighten monetary policy further and disappointing investors who this week sent US stocks to their highest level in over a year. That tightening “could take the form of holding rates steady in the face of expectations of a cut”, he said. Source: FT

Disinflationary trends in the US 1) CPI Inflation: 3.0%, Lowest since March 2021. 2) PPI Inflation: 0.1%, Lowest since August 2020. 3) Import Prices: -6.1%, Lowest since May 2020. 4) Export Prices: -12%, Lowest on record. Source: Charlie Bilello