Historically, when the money supply expands at a fast rate, it sets up a potential price inflationary situation. I’m ready to change my view if facts change, and Russia’s war already shifted my view towards the higher end of my prior expectation. To what extent China re-opens and increases its energy consumption, and to what extent US policymakers continue to try to reign in energy demand and cause a recession, are variables that can affect the timing. In the mean time, I continue to view year-over-year CPI as most likely nearing a plateau for a period of time, but the exact level and the exact timing remains dependent on a few factors. I’m hedged for this scenario by being overweight the energy sector, which I think will do well over the long-term regardless. The caveat that I gave for right-tail risk (going above 9% or extending past Q2) would be something going crazy in energy markets, which we got partly from the war and other factors. Prior to the war back in December 2021, I outlined a 7-9% probable local top in year-over-year CPI by late Q1 or early Q2, and we’re brushing up on the high end of that range here in mid-Q2 with that May CPI report. Here’s the month-over-month chart for headline CPI and core CPI: Consensus economists thought it would be 8.3% year-over-year, but it came in hot at nearly 8.6%, representing a slightly higher high.Ĭore CPI is down for two months in a row at 6.01% year-over-year, but continues to run above consensus expectations as well. The May CPI print came out on June 10th to some fireworks, because it was higher than consensus expectations. There are real-world supply constraints impacting energy markets and supply chains, which combined with the amount of broad money that was created over the past two years, leads to rising prices without necessarily a lot of real economic growth. Weak economic growth combined with high and rising prices (aka “stagflation”) frustrates a lot of academic economic models, but that’s because they are rather focused on the demand side rather than the supply side. Price inflation continues to be a global problem, and there is also continued evidence of significant economic deceleration and a risk of recession in the United States and Europe. Lastly, the equity section does a deep dive on Energy Transfer and the broader pipeline industry. Then, the bitcoin/crypto section takes a look at what’s happening within that ecosystem. The macro section of this report focuses on inflation and economic deceleration.
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