US CPI fall

We might be on the verge of an inflation bust.

The latest US CPI report briefly rattled markets as it held close to 5% but the coming reports are likely to show a steep fall.

Christophe Barraud thinks the June report could fall to around 3% for several reasons.

  1. CPI shelter likely peaked in March and will contract on a y/y basis soon
  2. Agricultural and fertilizer prices have fallen sharply, with food prices likely to follow
  3. Supply chain disruptions have eased significanly
  4. Gasoline prices are down nearly 30% y/y in June
  5. CPI services ex-shelter could ease slowly but should mirror slowing wage growth

Perhaps most-convincingly, he shows that the swaps market is pricing in June CPI slightly below 3% y/y in June.

That kind of headline should get the market more excited about the high probability of rate cuts in 2024, if not sooner. The May CPI report is due on June 13 and the June report is due July 12. If we see a 2-handle on the June print, you'll want to be long risk assets.