Pro Perspectives 8/9/23





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August 09, 2023

We get July inflation data tomorrow.
On a positive note, China's producer price data has been leading the trajectory of U.S. inflation on the way up, and on the way down. Last night's July report showed the tenth consecutive decline in year-over-year prices. 
As we discussed when Chinese PPI was at 26-year highs, and the Fed was telling us there was no inflation, this (China PPI) is the equivalent of "skating to where the puck is going."  The price of the products we will be buying in the months ahead, will be determined (in large part) by the inputs into Chinese production. 
That said, tomorrow's headline number will likely break the streak of twelve consecutive months of declining year-over-year U.S. inflation.
It will be higher than the barely sub 3% reading in the last report. But it will leave us with a headline number still in the 3s (good).
However, a powerful driver of falling inflation (the fall from over 9% to 3%) has been DEFLATION in energy prices.
That deflation was brought to us by supply manipulation from the White House (via the near halving of the Strategic Petroleum Reserves).  Now it's time to restock, just as the economy is proving to be stronger than most expected.   
With the above in mind, oil prices rose about 16% in July, and have continued to climb in August.
That said, it's unlikely to create any big waves in tomorrow's report.  The EIA's average gas price survey for July showed just a small (0.7%) rise in gas prices.
This is where the Fed will likely start turning everyone's attention back to, more strictly, the core inflation data for the future path of policymaking (excluding the "volatile" nature of energy prices).