Editors note: TCV Economist Bill Knudson has been steadily predicting the headline inflation decrease since November of last year. Kudos to Bill for having an accurate forecast model that constantly polls and updates new information. - Jeff Hulett
INFLATION Forecast update from new information - 7/12 at 9:30 am:
Actual monthly came in at 0.2% (predicted: 0.3%)
Actual annual came in at 3.0% (predicted 3.0%)
REALLY good news for the economy. Mortgage rates will decline but will lag.”
INFLATION Forecast Summary:
Inflation data for June 2023 is due this coming Wednesday, July 12. Likely to be a LARGE Decrease. Annual CPI will come in around 3.0% and possibly make it to 2.9%
The next Fed meeting is July 26. The Fed is unlikely to change policy with this CPI data but it will take off the pressure to increase rates. I anticipate the Fed will hold rates steady and make a statement to the effect: that while continued improvement on inflation is being attained, the Fed will remain vigilant in its efforts to ensure further progress.
INFLATION History: Over the past 50 years, the US has had 3 inflationary time periods and all related to Oil/Gas prices. Note as fast as inflation spiked, it fell off just as dramatically.
It is worth noting that mortgage rates do follow the CPI lead but there is a lag time involved. Rates tend to rocket up and feather down no one wants to be first to lower rates in case the market decreases stall.
INFLATION Forecast: The annual CPI total reported each month is a combined string of 12 months of data, think of it as being 12 dominoes, a new one comes on, the oldest one drops off. THESE are the 2 dominoes to look to see if the CPI will change. If June ’23 monthly rate is 0.3% it will replace the May ‘22 data point of 1.3% on 7.12.23 and the annual CPI will decrease from 4.0% to 3.0% MAYBE 2.9%.
Predicted June’s Monthly CPI to be released 7.12.23
It is a guesstimate that June’s monthly rate will be 0.3% when the actual is announced on 7.12.23. It could be higher or lower. As such the ANNUAL CPI for June will change accordingly. Below is a range of June monthly from 0.0% to 0.9%. The resulting annual CPI will range from 2.7% to 3.6%
If any one item in the CPI can quickly and materially impact CPI it is energy. While up since the beginning of the year, material changes have NOT occurred.