Hey guys, it's Sasha U.S Inflation date just came out and this might just be the most important inflation read in the years because the Federal Reserve has been increasing rates all the way through last year and this year and the reason that those rates have been going up is to stop inflation. Last year, inflation peaked in June at 9.1 while the rates were just one percent, and in the data that just came in, inflation is now at six percent, which is 0.4 percent lower than last month, and the rates are currently set at a range of 4.5 to 4.75 And the common economic thesis is that rates have to increase to roughly much inflation in order to exert a strong downward pressure on that inflation. The reason the FED increases rates is because the higher the rate goes up, the less people want to go out and spend and the more people want to save. The opposite happens when the rates go down.

so as the rates go up, the Federal Reserve pays a higher rate of return on money deposited with it. and this means that savings accounts, bonds, and everything else starts suddenly paying more interest and the more interest that you can get by Saving you money by keeping hold of it, the less you want to go out and spend it. When interest rates are at near zero percent, you don't get anything for holding on to your money, so everyone just goes out and spends it. And now the gap between the interest rates and the level of inflation has shrunk all the way down to just 1.25 But at the same time as they are increasing rates, the FED has for the first time in history deployed an aggressive quantitative tightening program.

this is just a fancy name for the FED reducing their balance sheet. It is the opposite of quantitative easing, which is when the government prints money to stimulate the economy like what happened during Covid. So the FED has been increasing rates and at the same time they've been reducing their balance sheet. and at the same time as all that, we have seen an economic slowdown.

Technically not a recession, but a Slowdown nonetheless doesn't matter whether it is technically or not, and the stock market has fallen since the start of 2022, and at the same time as all of that, that employment remains at historically high levels, which is extremely unusual in these circumstances. And wages of those people who are employed have not been increasing anywhere near as much as the level of inflation. And this unique set of circumstances meant that the inflation we've been seeing has been dropping a lot more quickly and sharply than many expected. Because in recent months, many analysts were expecting the FED to keep increasing rates all the way through.

This year is going to be really bad. We're in for the worst year ever. Blah blah blah. You know those kind of thumbnails on YouTube And here we are and inflation just keeps falling.

And this month we are seeing some very encouraging signs within the inflation data. Food inflation started to drop significantly for the first time last month. food inflation was at 10.1 and it's now dropped to 9.5 food at home and even more important metric in my opinion was 11.3 and is now down to 10.2 percent. A significant jump down Now don't get me wrong, these are still very high numbers.

This means that food is still going up 9.5 percent compared to the same time last year, but the rate at which is going up is falling and ultimately is going in the right direction and that's what matters. Even more interestingly, shelter data came in very soft. Shelter is a measure of how much it costs people to rent or to pay their mortgage. Last month this measure was at 7.9 and this month it only increased to 8.1 Now I Personally was expecting a significantly higher increase because shelter is a lagging indicator.

While you live so somewhere and you pay your mortgage or pay your rent, you don't care if the price of mortgages, the price of houses, and the value of rent is going up around you because you just keep paying the same amount every month. You could live in the same place for three years for five years on a fixed deal and your monthly payments wouldn't change. But every year, while that happens, the price of property around you is increasing and so are the rent costs now. CPI is designed to measure actual costs that people are paying to live every month.

So just because house prices go up doesn't mean that everyone is suddenly paying more in rent or paying a higher mortgage. You have to wait for people to move for that to happen. So the Shelter figure is always delayed as a result in the CPI Because of that, and while rents were going up by 12 to 15 percent for a two-year period and house prices were exploding, shelter inflation was sitting at very low single digits. But recently rent increases have been falling and because of the economic situation, U.S home sales have also fallen.

And remember, if people are not buying new home, their mortgages are not going up. So shelter only went up 8.1 percent in the CPI report. As a result, Energy has posted a negative month-on-month figure in February and is now at 5.2 Overall, so a lot lower than it was a few months back, but still not quite negative. The good news is that this number will start being negative at some point.

The reason that this is good is because if a component of the CPI is negative, it pulls the average number down a lot more. You can see that gasoline is now at minus two percent year on year, and fuel oil is at plus 9.2 percent. But if you look at the chart of oil prices in the US, you can see that the oil price today is around 80 and a year ago it was a 96, So that's about 17 cheaper. and you can see that the oil price went way higher in April and in May and in June.

So when we see the same inflation data next month, the month after, for the next three to four months, the price of oil will be significantly cheaper in those months than it was a year ago. And hopefully that means that the prices the pumps will begin falling as well. Although you might have noticed that every single oil company has been posting absurd record profits because they've been abusing the situation, making an absolute Killing In Cahoots with the government who's not doing anything about it while pretending that the only reason that it costs an arm and leg to fill the car is because of Russia's invasion of Ukraine. Anyway, the situation is even more interesting with electricity.

Renewable electricity generation has been exploding recently, which was good for long-term price stability and the price of gas in the US has plummeted. You can see that at the moment it is almost half what it was a year ago because a year ago Russia invaded Ukraine and Russia was supplying a giant amount of gas to Europe at the time. But now prices stabilized and is now way lower than a year ago. and you can see that the huge prices on gas continued all the way through to November Which means that if prices continue to sit roughly where they are this year, there will be much, much, much cheaper when you compare them to the same point point last year.

But looking back at inflation, electricity is still sitting at plus 12.9 percent year on year and utility gas is at 14.3 percent. So what's going on? how come consumers have to pay 14.3 more if the price of gas is down 50? Well, the energy companies will tell you that this is because of you know complicated reasons they have to do all this buying of gas and Loan contracts. They are locked in on all these high commodity prices and it will take time for it to filter through to you and to your utility bills. Of course, when the price goes up, this argument does not apply and the Energy company will increase your rates right away because you know they have to pay for the gas because they're a bunch of greedy pigs.

But anyway, these Energy prices have to come down eventually and you can see that already in February the price of gas is down eight percent month a month and the rest of the index is looking very good too. New car prices are at just 5.8 percent, but the last two months have only gone up by 0.2 percent month a month each. So the trend is very much down and you've probably heard in the newsletter in the last two months new car prices have collapsed all around, which is going to help this metric come down even more. Used cars are now minus 13.6 and all the rest is sitting at two to three percent except transportation services.

But transportation is linked to the price of energy, so as energy Force Transportation should in theory follow. So the reason this inflation data is so good is that every single major component is trending down and we have data showing that they will continue trending down. Food has finally started coming down as well. After being resiliently high energy inflation is falling and is on track to be negative.

soon. car prices are falling. The shelter number in the CPI is now higher than the actual increases in rents and house prices. So although it is a lagging indicator and we'll probably continue going up for a few months because of that, the future shelter numbers will now be lagging today's data, and the longer that continues, the more downward pressure there will be on the shelter number over overall and eventually will have to start coming down too.

And if you're the FED, you're sitting there looking at all of these numbers. What do you do? The increases in rates are already causing pain, they're breaking things, people are struggling to pay their bills. Three Banks collapsed in the last week and the entire reason for this collapse was high interest rates because the bonds and mortgage-backed securities that those Banks bought a few years ago when rates were very low are now not worth as much because rates have since increased. now.

A few days ago, everyone was certain that the FED would absolutely continue increasing rates and the consensus wasn't a 50 basis point hike. Next week after the banks collapse, that consensus dropped to a 25 basis point increase. But inflation is on the way down. You can see it in the data.

We can see from the data that all key components of inflation will continue falling in the next few months. Unless something weird happens. It might be a bit awkward because during Powell the Chairman of the FED has been busy giving speeches where he kept saying that they will not hesitate to increase rates because they are so prudent. He even gave one of their speeches last week hours before the first of the bank started collapsing.

so you might look a little bit silly. If The Fed does not come through and actually increase rates at the meeting next week, But maybe looking silly is the least of the evils here is looking very likely to me that there is now a decent chance the rates will not go up. I Personally think that's probably the right call at the moment. The next Federal Reserve Voluntary Policy Committee meeting after this one is on the second and third of May and the reason that's important is because there will only be one more inflation update before that next meeting.

in the middle of April we will get data for March. So if the FED decides to not increase rates, there is only one more month of inflation Data before they have the option to change that approach. Nick Go and increase it at that next meeting. On the other hand, if they do increase rates now and more Banks start collapsing.

The situation gets out of hand. It might come back to bite. They might have to call an emergency meeting, maybe do an emergency drop in the rain it out of nowhere. This does happen.

Sometimes they drop the rates in an emergency meeting on a Sunday when covert first turned up and I guess they don't really want that situation to happen. And here is the thing. The US government has come out and gave people reassurances that they will do anything to make sure that customer deposits are safe to prop up the system. This may have other long-term implications, but in the short term it has provided the confidence that the stock market really needed.

Inflation is now on the way down near the FED does hold the rates flat for the first time since the start of last year. This may be the start of a very interesting period for investors. Three months ago, everyone on social media right here on YouTube was telling you that the world is about to collapse. You should sell all of your stocks because it's definitely going to get a lot worse.

Remember it, it wasn't that long ago. I shared my view on this degenerate Panic selling at the time and I got a massive load of hate for doing this. But here we are just three to four months later and look at how Soul shaping up. We are by no means out of the woods, yet it could yet get worse.

You can never tell if we are going to enter recovery. it will take a few months to really get going, but the data that I was talking about four months ago talking about today is looking a lot better today when you're looking at the outlook for the next six months. Interesting, right?.