The Fed Will Raise Rates Even As Inflation Melts

Good CPI

The news of the week revolved around inflation. First, CPI (Consumer Price Index) on Wednesday (July 12). As we have forecast in past blogs, the rate of inflation has begun to melt. The +0.2% rise in both the headline (0.180% to the third decimal place) and core (+0.158%) was below the +0.3% expectation (for both). That brought the arcane year-over-year inflation rate to 3.09%.

The year-over-year calculation doesn’t say much about the current trend. The three-month and the six-month calculations give better trend information. The latest three-month annualized rate of change is 2.7%, while the six month is 3.3%; clearly headed in the right direction. The sub-index that Fed Chair Powell says is key, Services ex-Rent and Energy, actually deflated in June (-0.005%). What’s the likelihood that Powell discusses this index at the July press briefing? (Answer: Nil)