The economy's new inflation story is here: Morning Brief
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Inflation in the US has been cooling.
And with this we've seen the story for investors around consumer prices moving from inflation to disinflation in the summer of 2023.
On Thursday morning, the latest Consumer Price Index (CPI) report is set to show prices in July rose 3.3% over last year on a headline basis and 4.7% over the prior year on a "core" basis, which strips out the costs of food and energy.
As Yahoo Finance's Allie Canal highlighted on Wednesday, economists do not expect to see this data challenging the notion that a "soft landing" — wherein inflation slows and the economy keeps growing — is becoming increasingly possible for the US economy.
And the Yahoo Finance Chartbook we published earlier this week revealed that investor attention around pricing pressures has become squarely focused on disinflation, a key feature of any soft landing.
One chart on this front contributed by Tom Lee, managing partner and head of research at Fundstrat, puts perhaps the cleanest frame around this idea.
As Lee's work shows, nearly half of the overall CPI basket is deflating, meaning prices are down from the prior year. So while headline inflation rose 3% in June, almost half of the components of this report were down from the prior year.
A notable drop in energy prices in June was a large contributor to this data.
Gas prices, however, have started to creep up higher as oil prices have risen. And as Fed Chair Jay Powell acknowledged last month, it is headline inflation — not core inflation — that shapes how most consumers experience price changes. A possible risk in the coming months for the market.
But another theme that emerged from our Chartbook is an expected drop in rent inflation, which stood at 7.8% annually in June, though some private data is showing rents are set to fall, as we can see in the following chart from Ryan Detrick, chief market strategist at Carson Group.
Right now, at least, almost everywhere an investor can turn there are signs of pressures either easing or, in some cases, outright reversing.
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