The April, May, and June Consumer Price Index (CPI) data likely put to rest fears of a dreaded second wave of inflation. Conversely, the disinflation process may have resumed in earnest. The June headline CPI actually declined -0.1% month-over-month while the core CPI rose a modest 0.1%. The June data showed widespread disinflation. Rents, which have been the stickiest component, rose by the smallest amount since April 2021. Core goods prices fell -0.1%, led by declines in both new and used vehicles. Furthermore, the June employment report showed that year-over-year growth in average hourly earnings grew at the slowest pace in three years. The recent inflation data open the door for the Fed to begin cutting interest rates in September. Good news, right? Maybe so, maybe not. Inflation is falling in part because the economy is weakening. We will return to this topic, revisit the economic landing scenarios we reviewed last quarter, and discuss the implications for portfolio strategy later in this commentary.
