Pro Perspectives 9/8/22

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September 8, 2022

Markets are beginning to position for Tuesday's release of the August inflation report.
It should come in weaker, which would be a positive catalyst for stocks. 
For reasons why this inflation report should be soft, let's revisit for Aug. 31 note …
"The gas price input has been a huge predictor of the month-over-month CPI number for much of the year.
We looked at this [analysis] in July, ahead of the June inflation data.  Gas prices had exploded 11% higher, and CPI came in scorching hot (+1.3% monthly change).  We saw the opposite in the July data.  Gas prices were down 7%.  Monthly change in CPI was flat – no change.
So, what did gas prices do in August? 
The Energy Information Administration (EIA) does a weekly survey of gas stations across the country.  Those survey results show a fall in gas prices of 12% in August."
So with a big drop in August gas prices, the inflation data should be soft.  In fact, as I said in this August note, "if it weren't for the clues on rising food prices (for the month), I'd say this August number could even be negative."
To be sure, these Tuesday numbers will be a huge driver in the Fed's decision on rates, which will come a week later (Sept. 21).  A soft August inflation number could give the Fed the cover to raise by 50 basis points, rather than 75.  That would be a positive surprise for markets (i.e. stocks higher).
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