If you’ve been a loyal reader of the Friday Five, you will be all too able to name the “star of the show” when it has come to economic data over the past several years. You guessed it – inflation!

Yet after this week’s two inflation prints (discussed in more detail below), I think it’s safe to say that inflation may be taking a backseat in the economic data car ride moving forward.

Why is this? As you will see below, inflation appears to be sufficiently cooled and there are higher profile risks to this bull market moving forward.

Let’s start with the Producer Price Index (PPI) report released this week. As you may recall, PPI measures a basket of prices of goods and services at the wholesale level in the U.S., from raw materials to finished products. Economists closely watch the PPI as it tends to bleed into the consumer-level as producers eventually seek to pass price increases along to their customers. The report showed an increase of 0.1% in July, below expectations of 0.2%. Core PPI (excluding food and energy which are volatile components) fell 0.05% vs expectations of 0.19% increase. All in all, this was an encouraging report and showed cooling of prices at the wholesale level.

Next came the report on consumer prices (Consumer Price Index or CPI) on Wednesday. Again, the results were supportive of cooling inflation. CPI rose 2.9% year over year (the first time below 3% since 2021) and rose 0.17% month over month, in line with expectations of 0.19%. This marks the fourth straight month of negligible increases, which as a newsletter we read said ” four makes a trend, and the trend is your friend.” Of further importance is the fact that the two largest contributors to the remaining slight uptick – shelter and car insurance – are items with known and observable lags and will soon become deflationary.

If inflation is taking a backseat, what data is now “riding shotgun?” The new star of the show in our view – growth. It’s clear that there is now intense focus on whether the Federal Reserve has actual achieved the soft landing it promised (ie: bringing down inflation and maintaining strong labor markets, all while avoiding a recession) – or if there is new evidence that the Fed kept rates high for too long and we are on the brink of a recession after all.

Last week’s “flash crash” seems to have been in part a “growth scare” (although most of the selling seems related to the unwind of the yen carry trader) – with markets more on edge as it relates to the US economy’s ability to grow from here and any inkling of a slow down (such as the July jobs report that predated that Monday sell-off). All major data related to the ongoing growth rate of the US – productivity, labor, GDP, consumer spending, earnings of retailers and tech companies, etc. will start to get far more airtime as inflation becomes yesterday’s worry.

While there is always something to keep an eye on and pay attention to, don’t lose sight of the positive news in the above discussion. Inflation was once running at a 9%+ year over year increase – and it’s now below 3%. That is a remarkable change – and a major accomplishment. That shift, along with some softness in the labor market, likely gives the Federal Reserve enough backward looking data – and future projections – to support a rate cut in September (with more to follow).

Such a move in rates should be supportive of equity prices, as well as helpful to boost principal in fixed income. Keep in mind that rate cuts will directly lower yields on money market funds and newly issued bonds/CDs, so now would be a good time to review your cash equivalents and take action.

Onward we go – with new some new data points in focus,