"Everything's down except inflation
And that means inflation has peaked and will be headed down in the months to come.
Inflation as measured by government indices (e.g., CPI, PCE Deflator) is a lagging indicator of true inflation. True inflation is defined as the loss of purchasing power of a currency. Right now that is just not the case: the dollar is soaring against nearly every currency in the world and virtually all commodity prices are collapsing. Don't pay attention to inflation; pay attention to sensitive market-based prices—they tell you where inflation is headed.
The Fed was very slow to see the inflation problem which showed up in surging M2 growth in 2020, and they are being very slow to see that inflation fundamentals have improved dramatically this year. Chairman Powell has it all wrong: the way to kill inflation is not to kneecap the economy, it's to reduce the supply of money and increase the demand for it by raising interest rates. The Fed has already succeeded in doing that! There's no reason at all that we need a recession to get inflation down. In fact, a growing economy can actually help to bring inflation down by increasing the supply of goods and services. I just don't see the Fed continuing on the inflation warpath for very much longer. This bad Fed dream will be over soon. This is not the time to be cashing out of risk assets.
...The M2 money supply has risen at a paltry 2.3% annualized rate over the past 9 months, and M2 has been flat for the past 6 months [from a high of 27% in February 2021]. If rapid M2 growth beginning in 2020 was the fuel for inflation (very likely), then the inflation fires are already dying down. The surge in M2 that began in 2020 was the spark that triggered rising inflation about a year later; the lack of M2 growth that began late last year will undoubtedly result in a decline in measured inflation before year end."
(Everything's down except inflation dated 09/27/2022 by Scott Grannis, Chief Economist with Western Asset Management from 1979-2007)
Full article can be read here: http://scottgrannis.blogspot.com/2022/09/everythings-down-except-inflation.html