Hey guys, it's Sasha The main inflation data for the United States has just come in at 4.0 percent. This is below expectations, but the fact is those expectations themselves have shifted downwards very fast in the last few days. Just 10 days ago, the consensus estimate for inflation data was sitting at around 4.7 4.6 after it was 4.9 percent in the previous month. But then in the last five days, this has rapidly fallen.

so the market is now acting very surprised that inflation is dropping I Know who could possibly have thought? The good news about inflation is that all the critical all the actually important components are doing better than expected. Food that was sitting at over 10 not that long ago is now down to 6.7 which is really good. It's still going up before all the people write those comments, but it's going up more slowly. The food inflation fell from 7.7 in the previous months.

That's a whole percentage point in just one month food at home, which is the really important bit here is down at 5.8 percent from 7.1 in the previous month, that's a 1.3 percent drop. This is extremely good for the economy that it might be looking to bounce back in the second half of this year. Now Energy is at minus 12 I Am. Sure, once the media looks at all this in a bit more detail, they'll say this is so surprising.

Nobody could possibly a team is coming, but Energy still has a long way to go from here because you can see that the big drops are in commodity prices. So gasoline and fuel oil are down a lot. but this hasn't yet translated into electricity and piped gas prices because the energy companies are busy screwing their customers over and not passing on the huge drops in prices. Now there is one problem in this inflation data because tomorrow, the Fomc committee is going to announce their raid decision.

and on the surface, you would think that there is no way that they can possibly increase rates. Inflation is collapsing down to four percent. The interest rate is at 5.25 Five percent. What possible reason can they use to keep increasing rates like they've been threatening for the last few weeks In speeches? It was patently obvious that the last two increases were unnecessary I said as much every single time, but this time around, you would think that even those Muppets would really struggle to find any justification for another rate hike.

Well, the core inflation figure comes in at 5.3 percent, and last month it was at 5.5 So I am guessing that Jerome Powell and the other idiots on that committee will say that inflation is sticky because you see core inflation is not moving down all that much. not moving down fast enough because energy and food are not important to you. See, nobody cares about them. The people struggling to pay their bills.

Food and energy are not important. Those things are not as important as new cars or as watches. The things that are critical and people people being able to live their lives are not important factors. It's all about core inflation.

You can strip them right out. And because core inflation is so sticky, they have to increase rates. Or maybe hold rates with a view to increasing them next month. You heard it here.

First, inflation is going to be sticky. The problem is that this argument holds no water. If you look at the table One Supplement you can see that the core part of inflation makes up 79.6 of the total. U.S Inflation and Shelter makes up 34.6 of the total.

So Shelter makes up 43 of core inflation, and you can see that Shelter is sitting at eight percent. So let's do some maths: 43 of core inflation is at eight percent. The average is 5.3 percent. So that means that the remaining 57 of core inflation average out at 3.3 percent.

Shelter is the only thing holding inflation up, and shelter is a lagging indicator. Not because it's a bad metric, not because people can measure it properly, but because of how it actually works. Let's say, you live in a house and you don't move for five years. During those five years, the price of houses goes up 10 per year.

Then after five years, you suddenly decide that you have to move for work. For some other reason. 73 of the shelter figure is people buying houses, not renting houses. So for five years, your mortgage payments remain the same.

They don't change even though house prices continue slowly going up. But then you move and boom in one. Fell Swoop If you buy the same sort of property, the cost will be 61 percent higher, so your payments will go up by that 60 or percent. So with Shelter, even if house prices and rents increase, it doesn't mean that people immediately start paying more.

It takes time for that increase to naturally feed through to impact people's actual monthly payments. Those who rent have to wait until their fixed term expires, or whenever the next annual increase review comes in or whatever. And remember that landlords might not even pass all of the real costs that they're experiencing in one go because they don't want to have an empty property sitting there so it can take a long time for the changes in prices of houses and changes in rents translate into what people are actually paying. We have had a crazy house price explosion during Covid, and the Shelter Indicator only really started growing last year a big lag and is now sitting at eight percent even though all the underlying reasons why it went up have started going the other way.

U.S House prices fell in Q1 this year. The biggest foresense records began 70 odd years ago, but they only fell after the biggest growth in prices in history happened first. So the Shelter Index first has to play catch-up before it can start dropping because it sat at nearly zero percent while the property boom was happening. But in a few months time, we'll see that downward pressure come through.

Rental price increases are at about six percent at the moment. They sat at 12 up for about a year and a half, so they are coming down. but again, it will take time for that to filter through into the CPI Shelter data as well. But the important thing is this: If the Fed increases rates tomorrow.

that increase will have no meaningful impact on the shelter part of the index because shelter is lagging So much so, if Jerome Powell stands up and says that core inflation is sticky and the FED is worried about it, you know right there and then that he is completely full of every data point is showing really strong, good positive. Trends Look at the oil price: Brent Crude is below 74 at the moment. Even though OPEC and Russia are doing everything cutting production every week, it seems to try and pump the price upwards. Natural gas fell sharply the beginning of the year and has stayed low.

It is about 75 cheaper than at this point last year. It is cheap even compared to long-term historical numbers and the high prices. Last year were driven by Panic from the Russian invasion of Ukraine. People were saying that Europe is going to run out of gas.

People are going to have to turn the electricity off in major cities and countries across Europe and those high prices stayed until November And remember that the commodity prices in the CPI lag the real world commodity prices because you can see that gas and oil have fallen by a lot more than what you're seeing in the CPI data and the consumer prices have a big lag on those delayed commodity prices because of the greedy Energy company. So energy is going to continue being a big negative factor as all of this flows through for the rest of this year and going into next year And energy is crucial because it's not only the direct component that you can see in the CPI but it also has a big silent indirect weight that goes into the price of everything else. I Just took a quick look at the media and sure enough, the idiots are out there spouting the obvious CNBC says excluding volatile food and energy prices. The picture wasn't as optimistic.

So-called Core Inflation wrote 0.4 on a month and was still up 5.3 from a year ago, indicating that while price pressures have a somewhat, consumers are still under Fire Bloomberg Said That said, a key key gauge of prices closely watched by the FED continued to rise at a concerning Pace the core CPI Rose 0.4 for the third straight month in line with estimates. So yeah, Jerome Powell is obviously going to use this line tomorrow because of being fed to the Press because it's the obvious thing whether the FED poses or not. The good news is that in the U.S the wage inflation spiral did not take off and this is now really helping inflation cool down a heck of a lot faster in the UK, The situation is the opposite. It's pretty bad here.

Wages the beginning to spiral because the bank of England and the UK government have no idea what it is that they are doing. UK Wages have increased by 7.2 percent. They are now increasing above the level of core inflation In the UK in data that was published this morning, this is the fastest increase in 20 years. At the same time, Us data shows that wages are only going up 4.3 which is really good because it doesn't encourage inflation.

EX Exploding It is moderate. It is now becoming increasingly likely that tomorrow the FED will pause. rate hikes in Jerome power will come out and say something like we are still very concerned about core inflation because it is sticky and we will increase rates in July if necessary. So let's keep an eye on that inflation.

Then we will have one more inflation rate before the next meeting. Food is going to fall, more energy is going to fall more Transportation will fall more shelter will still be sitting at around eight percent because of that lag effect, and the FED will probably just repeat the same line and say that they are watching what happens with inflation. Except watching what happens with inflation will be the wrong move. It will be another example of the FED having no idea what they're doing because you can see where the numbers are going.

It's not rocket science. It's a bit like playing tennis and watching your opponent hit the ball. and then you have to decide what to do. Any normal person with more than one brain cell will look at the initial trajectory of the ball.

the look at the way that the racket was facing when the ball was hit. They'll look at what's happening. They'll try to see where the ball is moving and they will move to where the ball is going so that when the ball lands, you can hit it right back. But the way that Jerome Powell and the rest of the FED clowns play tennis is this: They see that the opponent hit the ball.

They're standing on the right side of the Court. They can see that the ball is moving to the left side of the court, but even though they can see that, they'll still make two more steps to the right because that is where you were moving before that ball was hit. So of course logic says that you should just keep moving in the same direction for continuity regardless of what the data is telling you. Then you get to the situation that you are in right now.

You have already moved in the wrong direction twice. But now, instead of moving left, instead of reducing rates, you will stand still and watch what happens to the ball. Because it would be completely premature, it would be impossible to conjure. It would be so dumb to start moving to the left side of the court before the ball actually lands there.

That is not the way that the FED does things. That's not the proper way. The FED will stand there like an imbecile, holding their private parts, watching the ball fly to the opposite side of the Court, wait for it to land, and then go. oopsie.

We need to run after the ball and start sprinting trying to chase the ball that is moving away from them. They'll trip up all over themselves, break a leg, look like a total ass clown. Lose the point. And it's not surprising because they did exactly the same thing the previous time when inflation was going up.

As it's stands, inflation is rapidly reducing and the market is bouncing back. Luckily for the Fed, their rate hikes have somehow not destroyed jobs. The US economy has proven incredibly resilient, which is great. The economy is strong despite the best efforts of the FED to with it because here is the number that you really need to know if you exclude Shelter From The CPI the rest of the index puts together has an average of 1.9 percent below the two percent Target.

So Shelter by itself is pulling inflation up from 1.9 to 4.0 just like I've been saying for about six months now and the high components of inflation like food and transportation are falling really fast, which is great. So that average excluding shelter is on the way down from the 1.9 figure, and shelter is a lagging indicator which will eventually come through as well. But there is nothing that you can do in the short term too affect it. Increasing rates or holding them will not affect that shelter figure.

The fact that the FED cannot do this basic maths is astounding. This is not the random opinion of a random guy on YouTube. These are called hard facts, but hey, let's not get a fact stand in the way of political for coroundary. the FED should be reducing rates right now because when they don't and leave them at 5.25 percent, maybe even God forbid increase them until September they will be way too late to act again.

But hey, I am sure we can all act surprised in September or October just like we did 18 months ago when inflation magically stopped being transitory overnight. If you found this useful and you want to join the detailed discussion in my Discord, please sign up for my Patreon. The link is in the description. Thank you so much for watching I Really appreciate it and as always I'll see you later.