Thread by @C_Barraud

🇺🇸 #Fed | From #Inflation (Now) To #Deflation Fears (In Late 2023)

*A bit provocative I know but leading indicators suggest that CPI YoY will normalize quickly in the coming months and, in absence of external shock, could return to 2% in late 2023.
*A thread ⬇

1- Market #rents will keep retracing in the coming months. Household formation and rental demand are slowing in response to macro conditions while #housing supply will gain traction in the coming months, with a peak expected around 4Q23 (HT @jayparsons).

The collision of these factors will probably result in a contraction of market #rents on a YoY basis at some point next year. In the past, the CPI’s measure of rents for homeowners has typically lagged other measures of market rents by between 6 and 12 months.

2- Proxies also point to a significant downward normalization of food prices’ growth by the end of 2023. Agricultural commodity prices – which are usually leading CPI Food prices by 12 months – retraced over the past few months.

3- Supply chain disruptions heave eased significantly.
Several indexes point to a partial normalization at the global level and even a return close to normal in the U.S. (at least in manufacturing sector).

4- Core good prices are expected to contract on a YoY basis at some point in 2023
In this context (easy supply disruptions), wholesalers of finished goods have faced an extremely large rebound in inventories due to weak real consumption and will be forced to implement discounts.

5- In addition, there are already signs that used cars and trucks’ prices could contract further on a YoY basis amid significant supply chain improvement for new vehicles.