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This week, there were two things that warranted comment. The first was the inflation reports, and the second was the debt ceiling. Let’s take a closer look.
Inflation Moving in the Right Direction?
Inflation continued to decline slowly, which is good news. But it is still way too high, which isn’t. That much isn’t news though. What is worth discussing is that the decline in inflation, despite the headlines, has been and continues to be faster than the increase. In other words, we saw a spike in inflation, but since then it has dropped faster than it rose. That distinction can be hard to see in the month-to-month data, so let’s review the overall numbers.
According to Bespoke Investments, based on the April CPI inflation number of 4.9 percent, inflation is down 4.2 points from the peak last June, compared with an increase of 3.8 percent in the 10 months before the peak. Inflation is declining faster than it went up. The decline is also consistent—down for 10 months in a row, which is the longest streak of all time. That streak should continue over the next couple of months.
In short, what mattered this week is that the inflation trend continues to be very good. Not the number itself, but the trend. With the trend moving in the right direction, sooner rather than later the number will be much closer to where the Fed wants it to be. That is good news.
Debt Ceiling Negotiations Continue?
The other thing that mattered this week is the debt ceiling. The headline was that the Friday meeting of the principals—President Biden, House Speaker McCarthy, and others—has been cancelled. There is fear that the cancelation is bad news and reflects a breakdown. That may be the case. But the more informed commentary suggests that the respective staffs continue to work on cutting a deal, and the meeting was not so much cancelled as postponed. Nothing is certain, of course, but the fact that the negotiations continue is good news. As we move toward the X date (i.e., the date when the Treasury can’t pay all of the obligations due), the pressure to cut a deal will intensify. With discussions already underway and continuing, that pressure is a way to actually get to a solution.
Well-Disguised Good News
So, what mattered this week was two pieces of reasonably well-disguised good news. And disguised or not? Good news is still good.
Have a great weekend!
