Thread by @MBjegovic

Tuesday Sep 13 we get the most important economic indicator Aug #CPI that will determine the Fed's action in 2 weeks from now.

In many ways this report is more about core than headline with many fearing core #inflation to persist.

So where will #CPI print at?

A thread.

1/9

My estimates:

MoM
Headline: -0.4% vs -0.0% prior
Core: +0.1% vs +0.3% prior

YoY
Headline: +7.8% vs +8.5% prior
Core: +5.9% vs +5.9% prior

This is lower than both consensus estimates and Cleveland Fed Nowcast (see table).

2/9

My Aug #CPI estimates are 0.3 pp lower MoM and YoY on both headline and core than consensus.

The Fed's estimates are the most aggressive expecting monthly gains on both headline and core.

3/9

With my estimates Aug #CPI gets to:
1) +7.8% YoY, lowest since Jan (+7.5%) when the Fed wasn't doing any hikes/QT
2) -0.4% MoM, lowest since Apr 2020 (-0.7%, the lowest since the GFC) and only 5 months since the GFC had lower MoM reading, i.e. #CPI was higher 96% of the time

4/9

3) 2 consecutive MoM #CPI declines
4) core #CPI at +0.1% MoM, lowest since Sep 2021 (+0.1%) when the #Fed wasn't even thinking about thinking about tightening
5) core #CPI at +5.9%, the same as in July and June meaning core components are not accelerating like the #Fed fears

5/9

This is coupled with already known:
1) core #PCE (+4.6% YoY) below Nov 21 levels when the #Fed first announced tightening. It didn't do it for the next 4.5M until core #PCE reached a multi-decade high of +5.3%
2) wage growth within the #Fed's target (AHE at 3.6% annualized)

6/9

If current movements in forward looking indicators persist (like they have for the 1st week of this month), we are in for similar monthly declines again in Sep.

In Oct and later some core components will turn negative YoY dragging both core and headline even further down.

7/9

The #Fed expects +0.1% MoM for headline so -0.4% MoM would come as a straight shock to them.

They also expect +0.5% MoM for core so only +0.1% MoM would arguably come as even a bigger shock to them bc they (unjustifiably) expect some core components to be "sticky".

8/9

This takes 75 off the table.

With no "sticky" core components we are talking about a total change of paradigm for the #Fed.

Everything it now worries about goes down the drain.

This could potentially get 50 off the table as well.

25 or 0 remains a choice.

#disinflation

9/9