The Case for Disinflation, Ready those Bags

All, (EDIT: Original post had some cut off so added more charts below home prices)

While we all have been through war with inflationary prices, it appears we are coming out the other side. I will preface this with saying this is US focused, and that disinflation is not deflation. Disinflation is simply the slowing of inflationary pressure. And we've been riding that train for the past year and will continue to see it and potentially even some minor deflation. Why do I think so? Have a look:

Median, Trimmed, Headline, and Core CPI

First up is CPI. We've been trending down over the last while due to falling energy prices apart from the last 2 months which saw an uptick. The remaining measurements, which put less weight on or exclude highly volatile items such as energy have finally started rolling over this year. I expect this trend to continue. I also expect the energy component of Headline CPI to come back down? Why...well, look at the recent trends in gasoline futures and oil pricing over the last little bit. Personal anecdote, I've seen gasoline in my vicinity go from roughly $3.40 USD per gallon at the recent peak to about $3.05-3.07. These will start showing after the September report.

Oil Prices

Gas Futures

Next key component is food. Now, while there are some specific items that may be heading up a lot, as a broad category they are down. We can look at the Food Price Index, which measures some of the largest commodities components of food. With the exception of sugar, we are either back in normal ranges or net down. The index itself is lower than it was in 2021.

Food Price Index

What about housing? Also returned to normal growth rates if not flat over the last year. Interesting note is that the Fed uses a survey that leans on older data to calculate the housing portion of CPI. We haven't REALLY seen that flatten or turn over yet in their metrics.

Median Home Prices

What about rent growth? Also plummeting.

Rent Growth

But what about the BRRRR machine? Well, not worried at the moment. The Fed Balance Sheet is down about a trillion dollars (11% or so) from the high. M2 supply is down about a trillion (5%) from the high. This is actually the longest sustained decrease and flattening of M2 growth I could find.

Fed Balance Sheet

M2 Supply

What does that mean for us? Well, inflation coming down means increased odds of a pause to close the year and cuts by mid next year. We might not get a soft landing...but we may land with just some paint chips and a busted wheel rather than missing half the plane. M2 is extra exciting because it tends to lead inflation by about a year. See that bit M2 pump in 2020? Inflation started getting super hot a year later. We are about a year from the M2 peak. I expect plenty of room for CPI to come further down sooner than we think.