Despite continued falls in gasoline prices, YoY headline inflation is likely to remain at high levels in September on account of a relatively low prior year comparable. Core CPI, which is heavily exposed to lagging/smoothed rental data, has a significant likelihood of recording a new YoY peak in September for the current inflation cycle.
Steven Iam still a little confused as to why consumer spending remains relatively high when you take into account the significant cost of living increases in recent times. If consumer spending was to reduce then surely inflation would stagnate. Not sure why consumer sentiment is still positive.
It is certainly a little perplexing. One reason has been the large buildup in "excess" savings that occurred during COVID. Though recently this has begun to unwind as savings rates have plummeted in recent months (see here: https://fred.stlouisfed.org/series/PSAVERT).
While consumers so far appear to be stretching themselves thin as opposed to drastically cutting spending (likely because most people still have jobs), I think eventually the US reaches a tipping point where a more material slowdown occurs.
Ultimately when prices rise but the money supply remains flat (as it has during 2022), there will be significant pressure for an economic correction to occur, we don't know when the cards will all fall, but we know that plenty of indicators suggest that it is on the way. I do agree that once this occurs it is also likely to lead to a more drastic fall in inflation (which is essentially what the Fed is wanting to achieve via its aggressive tightening).
Steven Iam still a little confused as to why consumer spending remains relatively high when you take into account the significant cost of living increases in recent times. If consumer spending was to reduce then surely inflation would stagnate. Not sure why consumer sentiment is still positive.
Victor Yovanche
It is certainly a little perplexing. One reason has been the large buildup in "excess" savings that occurred during COVID. Though recently this has begun to unwind as savings rates have plummeted in recent months (see here: https://fred.stlouisfed.org/series/PSAVERT).
Another indicator of rising consumer stress is the large increase in credit card debt (see here: https://twitter.com/steveanastasiou/status/1576202776291557381). Consumer sentiment is also near historic lows (see here: https://fred.stlouisfed.org/series/UMCSENT).
While consumers so far appear to be stretching themselves thin as opposed to drastically cutting spending (likely because most people still have jobs), I think eventually the US reaches a tipping point where a more material slowdown occurs.
Ultimately when prices rise but the money supply remains flat (as it has during 2022), there will be significant pressure for an economic correction to occur, we don't know when the cards will all fall, but we know that plenty of indicators suggest that it is on the way. I do agree that once this occurs it is also likely to lead to a more drastic fall in inflation (which is essentially what the Fed is wanting to achieve via its aggressive tightening).