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US Inflation Fall - Coming to an End ?

Last week's inflation releases were mixed as CPI came in line and PPI was above the estimates. Within the CPI, the major contributor continued to Services with the highest monthly change in motor vehicle insurance. The contribution on the downside came from apparel, this might be due to the discounts given to clear the inventory before the new festival season begins.

The important segments are food and energy. Food currently is positive on yearly and monthly trends. Energy on the other hand is a large negative on the yearly trend but has turned positive on the monthly trend. The biggest increase was in Fuel oil and piped gas services. Two segments will be determining factors in the road ahead.

The market reaction has been muted except for the bond and currency market where the 10-year yield increased by 3% and the dollar index increased by 0.83%. Even the Fed rate swap markets have only reduced the rate hike odds by 5% to 10%.

Almost 37 days are left for the next FOMC meeting. But all eyes will be on the Jackson Hole event held during August 24-26 where Fed Powell might be giving any hints of the next step. Post that September CPI release will be important as it will have the full effect of the current fuel price hikes that have taken place during August.


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