The latest inflation numbers for the US suggest that the recent surge in pricing pressure has peaked… maybe. The bigger risk is that consumer inflation remains elevated. If so, that’s a significant headwind for the economy and financial markets, even if the consumer price index (CPI) is no longer accelerating.

The good news: CPI is showing mild signs of peaking after the release of numbers for July. The headline and core CPI are modestly below their recent peaks on a year-over-year basis.

Encouraging, but with the caveat that inflation remains high and so the Federal Reserve is expected to continue raising interest rates for the near term. Fed funds futures are currently pricing in a near certainty of another 50 or 75 basis-points rate hike at the next FOMC meeting on Sep. 21.

Looking at alternative and arguably superior measures of consumer inflation trends continue to paint a mixed picture, based on reading CPI data via CapitalSpectator.com’s Inflation Bias Indexes. The methodology takes a standard inflation index, calculates the one-year change, and then computes the monthly difference and transforms the results into standard deviations around the mean. This measure of bias offers one way to develop some quantitative insight for deciding which way the inflationary wind is blowing.

The bias for core CPI, which is considered a more reliable estimate of future inflation, ticked up in July, although it’s holding well below its recent peak. By contrast, headline CPI eased, largely due to softer energy prices in July. Overall, this data suggests that inflation has peaked but it’s not yet obvious that a sharp slide to a moderate pace is imminent.

Another set of alternative (and arguably more robust) measures of consumer inflation calculated by regional Fed banks continue to paint a mixed profile, based on reviewing the data through CapitalSpectator’s inflation bias methodology noted above. Two of these indexes reflect increasing inflation pressure in July while two other benchmarks show easing pressure.

The bottom line: there are hints that inflation has peaked but it’s still premature to assume that the worst has passed. A clearer picture, for good or ill, will likely emerge over the next several months. Meantime, the Fed seems set to continue tightening monetary policy until pricing data looks more convincing in support of the inflation-has-peaked narrative and is falling substantially. That combination is a high bar and at the moment still looks elusive.

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