The US inflation story is becoming increasingly passe

June’s headline US Consumer Price Index (CPI) year-over-year percent change was always likely to be in the low 3% range, as it was being compared to last June when energy prices surged following Russia’s invasion of Ukraine. However, today’s report also suggests that some of the “stickier” components of inflation — such as used cars and airline fares — are also moderating. The result is that core CPI, which excludes energy and food prices, now appears to be trending lower after being so stubbornly slow to decline.

Much of the rise in the June CPI can be attributed to housing, but because of the way it is calculated, it tends to not reflect current conditions. The S&P Case/Shiller Home Price Index, which tends to lead CPI shelter by roughly a year, is already flat while the apartment rental market appears to be softening.

Bottom line, I believe this is a positive report for risk assets and, quite frankly, it’s one that the market has been hoping for/anticipating for a while. 

A Federal Reserve rate hike is still on the table for July but is not as clear-cut as it once was. Either way, the end of tightening is nigh. Historically markets have tended to perform well in the one- and two-years after Fed tightening.¹