Last week’s CPI report marked a significant milestone as it is the first time in 102 years that we have witnessed twelve consecutive months of declining CPI on a YoY basis.
The last time we experienced that was in 1921 after the Spanish Flu pandemic marking the actual bottom for inflation rates at -15.8%.
Today, after the same monthly sequence of falling CPI, the rate is still positive and above the Fed’s target.
The overwhelming focus on the recent slowdown in inflation appears to be rooted in backward-looking analysis.
In fact:
Since last week’s CPI report, oil has broken out, gold rallied back above $2,000, silver surged, and agricultural commodities appreciated substantially.
While the macro environment today differs from that of the 1970s or 1940s, a lesson from history remains: inflation tends to develop through waves.
We have recently witnessed the conclusion of the first wave and are likely in the process of reaching a bottom in the recent deceleration period, with a new upward trajectory underway.
The primary reason for this is the persistence of underlying issues that continue to drive inflation rates higher:
▪️ Irresponsible levels of government spending
▪️ Escalating deglobalization trends, which necessitate the revitalization of manufacturing capabilities in economies.
▪️ Wage-price spiral, particularly driven by low-income segments of the society
▪️ Ongoing supply constraints due to chronic underinvestment in natural resource industries.
Just as base effects played a crucial role in reducing inflation rates, we anticipate that the opposite effect is on the horizon, with CPI likely to reach a bottom in the near future.