This week, inflation data continued to surprise to the downside. The latest readings for the consumer price index (CPI) and producer price index (PPI), both for the month of June, showed pronounced disinflationary trends.

At long last, the inflation fever has broken.

Global supply chains are mending, commodity prices are stabilizing, and consumer demand is shifting towards services and away from goods, all factors that are putting downward pressure on prices.

The U.S. Bureau of Labor Statistics (BLS) reported Thursday that the PPI for June rose 0.1% from a year earlier, the smallest advance since 2020. The consensus was for an increase of 0.2%. On a monthly basis, the PPI also increased 0.1% after declining in the previous month.

The “core” PPI (excluding food, energy and trade services) climbed 0.1% month-over-month, which was in line with expectations.

The increase in core prices over the past 12 months decelerated to 2.6% from 2.8%, representing the smallest gain since March 2021.

The PPI for services rose 0.2%; the goods component was unchanged (see chart).

This PPI report came on the heels of a BLS report on Wednesday that showed a deceleration in the CPI.

Read This Story: Latest CPI Report Spells The End of Tightening as We Know It

Because the PPI measures wholesale price changes before they reach consumers, many analysts view the PPI as an earlier predictor of inflation than the more popularly followed CPI.

Expectations influence the path of inflation. If consumers and businesses expect higher inflation down the road, they act accordingly, which in turn makes higher inflation a self-fulling prophecy. It’s significant, then, that New York Fed’s consumer survey, released July 10, revealed that inflation expectations continued falling, with the one-year expectation declining to 3.8%, the lowest reading since April 2021.

A separate report from the Labor Department on Thursday showed that for the week ending July 8, initial jobless claims were at a seasonally adjusted figure of 237,000 versus the estimate of 250,000, a decrease of 12,000 from the previous week’s revised level of 249,000.

The jobs market remains resilient, but not too hot, while inflation falls. That’s the sort of “Goldilocks” scenario that Wall Street covets.

Despite recession fears, stocks continue to add to their year-to-date gains. We seem to be building the foundation of a sustainable bull market.

The main U.S. stock market indices on Thursday extended the previous day’s gains and closed higher as follows:

• DJIA: +0.14%
• S&P 500: +0.85%
• NASDAQ: +1.58%
• Russell 2000: +0.91%

Disinflationary pressures are building across the board, and yet, the economy has been avoiding an outright recession (so far). The elusive “soft landing” is a distinct possibility.

Will the Fed pull a Lucy?

In light of the latest encouraging inflation data, my friend and colleague Dr. Joe Duarte made this comment to me: “The Fed’s got some ‘splainin’ to do if they raise rates and continue to talk smack.”

Dr. Duarte is chief investment strategist of our premium trading service, Profit Catalyst Alert. He makes an important point. (He’s also of Cuban descent, so I’m not surprised by the reference to Desi Arnaz.)

Federal Reserve Chair Jerome Powell has often talked down the markets at his press conferences this year, with verbal statements that are more hawkish than the underlying policy decisions. As inflation markedly cools, a “further for longer” stance from this point forward could cause gratuitous damage to the economy, but then again, Powell seems intent on preserving his “street cred” in the inflation fight.

Treasury bond yields have been moving lower, as investors price in a pause in the Fed’s rate-hiking cycle after its July 25-26 policy meeting.

During the second half of 2023, I believe that concerns about inflation and interest rates will increasingly give way to a solid case for growth. However, until the Fed truly stops tightening, we’ll continue to experience a roller coaster along the way.

Indeed, you should view bouts of volatility as buying opportunities. Market dips put quality stocks on the bargain shelf. That’s especially true of the Silicon Valley giants that are making long-term investments in leading edge technology.

Now’s the time to increase your exposure to growth stocks. Consider the advice of my aforementioned colleague, Dr. Joe Duarte.

Dr. Duarte has just pinpointed a tiny, unknown company that has developed a revolutionary “black box” technology.

You need to get in on the ground floor of this game-changing opportunity before the investment herd finds out and sends the share price soaring. Click here for details.

John Persinos is the editorial director of Investing Daily.

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