June 2023- Inflation Falls to 3%

According to the Bureau of Labor Statistics CPI report released on June 13^th, Annual Inflation declined from 4.0% in May to 3% in June.

(but more precisely, it was from 4.05% to 2.97%.)

Monthly inflation was 0.25% for May 2023, and 0.32% in June.

June 2023 Inflation Summary:

Annual Inflation fell from 4.05% to 2.97%
CPI Index rose from 304.127 to 305.109
Monthly Inflation for June was 0.32%
Next release August 10^th 2023

	Jan	Feb	Mar	Apr	May	June	July	Aug	Sep	Oct	Nov	Dec
2022	7.48%	7.87%	8.54%	8.26%	8.58%	9.06%	8.52%	8.26%	8.20%	7.75%	7.11%	6.45%
2023	6.41%	6.04%	4.98%	4.93%	4.05%	2.97%

What the Media Says:

Although the media has been reporting that “Inflation slows more than expected…”, if you’ve checked with us in the last few months, it wasn’t at all “unexpected”. We’ve been saying it was coming for months now. Our Moore Inflation Predictor (MIP) from way back in September 2022 told you this was coming. But it also warns that next month will be a surprise in the other direction!

BLS Commentary:

“The Consumer Price Index for All Urban Consumers (CPI-U) rose 0.2 percent in June on a seasonally adjusted basis, after increasing 0.1 percent in May, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all-items index increased 3.0 percent before seasonal adjustment.

The index for shelter was the largest contributor to the monthly all-items increase, accounting for over 70 percent of the increase, with the index for motor vehicle insurance also contributing. The food index increased 0.1 percent in June after increasing 0.2 percent the previous month. The index for food at home was unchanged over the month, while the index for food away from home rose 0.4 percent in June. The energy index rose 0.6 percent in June as the major energy component indexes were mixed.”

On an annual (non-adjusted) basis, inflation fell from 4.05% to 2.97%.

Individual Components

On a monthly basis, nothing was too outstanding. On an annual basis, however, we see that Energy has fallen significantly while Food, Shelter, and Services have risen sharply.

Although the numbers are slightly different than those presented by the BLS, the following chart from the Federal Reserve shows the gap between inflation with and without Food and Energy. So we can see how much food and energy are contributing toward overall inflation. If the blue line is above the red line, “food and energy” are adding to the overall inflation rate. But if blue is below red, they are actually mitigating overall inflation. Looking at the red line, we can see that without the downward pressure of Energy prices, inflation would be almost 2% higher. Actually, only energy is pulling inflation down, food is actually up 5.7% since last year. So, without energy but with food, the red line would be even higher.

Source: St. Louis FED

One reason overall energy prices are down over the last year is that the government has been flooding the market with cheap oil by depleting our strategic petroleum reserves. But at some point, they are going to have to replace those reserves (perhaps at much higher prices).

Note: Reserves would have started at much higher levels had Democrats not refused Trump’s request to increase reserves when oil was super cheap.

In this chart from the U.S. EIA, we can see the extent of the recent strategic petroleum reserve drawdown compared to those of Desert Storm, various hurricanes, and other supply disruptions. The recent draw-down dwarfs all of the others combined. Unfortunately, the E.I.A. is always a couple of months behind in updating its chart. As of April (the most recent data available), the SPR has been drawn down -44.6% since 2020 and even more since 2010. According to the data, the SPR stood at 656,140,000 barrels in July of 2020. By March 2023, it was down to 371,175,000, and in April, it had fallen to 363,723,000.

Inflation Chart since 1989

Beginning in 1989, the longer-term trend was downward until 2021.

(Note the declining “previous resistance” line.) But… Early in 2021, inflation started spiking and quickly broke through the channel’s top and then exceeded the pink previous resistance line with barely a hiccup as it passed through. Now inflation has crossed back down into that channel (with April generating the hiccup this time).

FED Actions

For two years, we said FED assets would go to $9 Trillion… and they almost got there. Then finally, the FED got its act together and started tightening, resulting in roughly a 2/3 Trillion decrease (QT2). But then a banking crisis broke out in California, and the FED jumped it back up, wiping out roughly 38% of the gains they made. Since then, the FED has been decreasing assets again, reducing it to just below the level prior to the bank scare.

See more commentary on FED Actions here, here, and here.

Monthly Inflation Compared to Previous Years:

In the chart below, we can see how the monthly inflation compares between 2019 (light green), 2020 (light blue), 2021 (pink), 2022 (red), and 2023 (orange). We can see that virtually every month in 2021 was above the corresponding month in 2020, but in 2022, April and July-December were below 2021’s level.

In 2023 so far, January and April were only slightly lower than in 2022, February was considerably lower than in 2022, and March, May and June were massively lower than in 2022. We are expecting the opposite for July, and then the rest of the year could be very disappointing for those expecting lower inflation.

Not Seasonally Adjusted Monthly Inflation Rates

Note: January 2022’s 0.84% was the highest January since 1990. June was the highest June since 1941 (although the first quarter of 1980 had some higher rates). Typically, June is the beginning of lower monthly rates.

	Jan	Feb	Mar	Apr	May	Jun	Jul	Aug	Sep	Oct	Nov	Dec
2016	0.17%	0.08%	0.43%	0.47%	0.41%	0.33%	(0.16%)	0.09%	0.24%	0.12%	(0.16%)	0.03%
2017	0.58%	0.31%	0.08%	0.30%	0.09%	0.09%	(0.07%)	0.30%	0.53%	(0.06%)	0.002%	(0.06%)
2018	0.54%	0.45%	0.23%	0.40%	0.42%	0.16%	0.01%	0.06%	0.12%	0.18%	(0.33%)	(0.32%)
2019	0.19%	0.42%	0.56%	0.53%	0.21%	0.02%	0.17%	(0.01%)	0.08%	0.23%	(0.05%)	(0.09%)
2020	0.39%	0.27%	(0.22%)	(0.67%)	0.002%	0.55%	0.51%	0.32%	0.14%	0.04%	(0.06%)	0.09%
2021	0.43%	0.55%	0.71%	0.82%	0.80%	0.93%	0.48%	0.21%	0.27%	0.83%	0.49%	0.31%
2022	0.84%	0.91%	1.34%	0.56%	1.10%	1.37%	(0.01%)	(0.04%)	0.22%	0.41%	(0.10%)	(0.34%)
2023	0.80%	0.56%	0.33%	0.51%	0.25%	0.32%

See: Monthly Inflation Rate for more information and a complete table of Unadjusted Monthly Rates.

Misery Index

Unemployment was down slightly, and with Inflation’s massive decrease, the Misery Index fell from 7.75% to 6.57%.

[Read More on the Misery Index…]

NYSE Rate of Change (ROC)

In February 2023, the NYSE- ROC crossed back above its 12-month moving average, generating a BUY Signal…

Last month we received confirmation that the signal was real in that the index had crossed back above the zero line. Of course, the market could easily take a break for the Summer moving sideways for a while, or something unexpected could happen, but at this point, it certainly looks like the market is recovering.

The NASDAQ is doing much better than the NYSE at this point.

For more information, see NYSE Rate of Change (ROC) and NASDAQ ROC Chart.

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