Inflation has peaked. At 2.5% year-over-year inflation (in the headline Consumer Price Index) in the first quarter of 2017, our predictive tracking algorithm suggests inflation will continue to slip for the remainder of 2017, down to 1.7% in the fourth quarter.
The market appears to have already sniffed out the peak in inflation. Energy has been the worst-performing S&P 500 sector in 2017 and the only in the red. The leader is Technology. Between the two there’s a gaping +1,530 basis point performance spread year-to-date:
- Tech (XLK) = up +13.3% YTD
- Energy (XLE) = down -12.0% YTD
As you can see in the Chart of the Day below, according to our models, the inflation peak is in. After peaking at +2.5% year-over-year inflation (headline CPI) in 1Q17, here’s where our predictive tracking algo is at for Q2-Q4:
- Q217 = 2.3%
- Q317 = 2.1%
- Q417 = +1.7%
"Meanwhile Consensus Macro (Bloomberg Consensus Estimates) is doing pretty much what it usually does," Hedgeye CEO Keith McCullough writes in today's Early Look, "taking the most recently reported inflation rate and calling that the forecast for the next 3 quarters at +2.4-2.5%. #Sweet."
We're sticking with our call that U.S. growth is picking up at the same time as inflation slows down.
