Finimize - 🤯 Is inflation slowing down?

Hi Reader, here's what you need to know for August 11th in 2:57 minutes.

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Today's big stories

US inflation finally dropped off in July
Stocks may be rallying, but there are three reasons you should still be wary about buying them – Read Now
Crypto’s struggles continued to take their toll on Coinbase last quarter

In Today’s Little Victory, Inflation Comes Down Slightly

What’s Going On Here?

US inflation fell by more than economists were expecting in July.

What Does This Mean?

It’s not often you’ll find investors celebrating US consumer prices that are 8.5% higher than they were the year before. But this was one of those rare occasions: July’s 8.5% was, after all, a marked slowdown from June’s 9.1% – not to mention better than economists had predicted. They were also expecting prices to jump 0.2% from June to July, but they were wrong on that front too: data showed there was no change at all, as a 5% drop-off in energy prices offset higher food and rent costs.

Why Should I Care?

For markets: Traders take this as a win.
The Federal Reserve has been trying hard to lower inflation, and this data could give the central bank faith that its efforts are starting to have the desired effect. Traders certainly seem to think so: they responded to the data by reducing the odds that the Fed would hike interest rates by 0.75 percentage points next month. That might be why the prices of risky assets like stocks and crypto went up following the update, and why the US dollar and bond yields went down.

The bigger picture: This probably isn’t a win.
Still, there are a couple of reasons the Fed probably won’t ease up. Firstly, it’s been vocal about the fact that it wants to see months of evidence that prices are coming down. More specifically, it needs “core inflation” – which strips out volatile energy and food prices – to consistently drop off, which definitely isn’t happening yet: core consumer prices rose 0.3% from June to July. Second of all, wages are still climbing at a historically fast pace. That might’ve got the Fed worried that we’re in a “wage-price spiral”, where a rising cost of living pushes up demand for higher salaries, leading to more disposable income and, ultimately, higher inflation.

You might also like: Why the Fed isn’t likely to change its mind.

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Analyst Take

Why You Should Be Cautious About Buying Stocks Right Now

Stéphane Renevier, Analyst

Stocks have rallied with a vengeance over the past three weeks, and it’s not hard to see why.

Second-quarter company earnings ended up better than analysts were expecting, while investors have become more and more confident that US inflation has peaked.

But if you’re wondering if it’s time to start shouting about the arrival of a new bull market, there are three reasons you might want to hold off.

That’s today’s Insight: why you should be cautious about buying stocks.

Read or listen to the Insight here

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