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“Having a little inflation is like being a little pregnant.” – Leon Henderson
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It’s been a quiet morning for markets so far, but enjoy the calm before the storm while it lasts. The release of July CPI comes in the next few minutes (or has already been released depending on when you read this), and in the immediate aftermath of the release at least, markets are likely to experience a surge in volatility. How long that volatility lasts will be directly correlated to how much the headline and core aspects of the report deviate from expectations.
Over in Europe, the major equity benchmarks have seen little movement versus yesterday’s close, and if the releases of CPI for both Germany and Italy are any indication (both reports came in right in line with consensus forecasts), maybe there won’t be too many fireworks today. We can always hope!
Today’s Morning Lineup discusses earnings and market news out of Europe and the Americas, overnight economic data, and much more.
Last month, the June CPI surged 1.3% m/m which was the largest increase in headline CPI since September 2005. With the July report expected to come in at just 0.2%, it would represent the smallest m/m increase since January 2021. If the July headline CPI does match expectations, it would be just the fourth time since 1960 that the rate of increase in the m/m reading dropped by a full percentage point or more. The only other three periods where this occurred were September 1973 (-1.4 ppt), October 2005 (-1.2 ppt), and October 2008 (-1.0 ppt). In two of these three periods, the economy was either right on the cusp of or in a recession while the third period was after Hurricane Katrina when gasoline prices in the US temporarily went bananas.
Wherever the CPI report comes in this morning, one thing we can say is that weaker than expected reports have been hard to come by in the post-COVID world. Last month’s report was the tenth straight month that headline CPI was either higher than or in line with expectations. That is the longest streak of months without a lower-than-expected report since at least 1999. Not only that, but the current streak started just a month after what at the time had been the longest streak just ended. In other words, over the last 20 months, we have seen the two longest streaks without a lower-than-expected CPI report over at least the last 20 years.
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