The story of the market year so far in 2022 has been persistent inflation, and its impact on Fed interest rate policy. The Consumer Price Index (CPI) increased by 8.6% in May on a year-over-year basis, the highest recorded figure in more than 40 years. Increases in the price of food (up 10%) and energy (up 35%) have been particularly notable, especially since Russia’s invasion of Ukraine sparked major disruptions in international trade, amid already-strained global supply chains.

But as the second quarter ended, there were some indications that inflation may have finally begun to peak. Commodity prices (as measured by the CRB Commodity Index) fell by nearly 12% between June 9th and June 30th, led by declines in lumber, copper, and other industrial metals. The index remains at its highest levels since 2014, but the recent downturn has been notable and substantial. Retailers like Target and Walmart are starting to report increased levels of inventory, and they have been forced to slash prices on some items in order to keep their warehouses from becoming overcrowded.

Certain formerly-hot sectors (like tech and crypto) have also recently begun to announce cost-reducing layoffs as their stock prices have slid, which has begun to limit wage gains, usually a leading indicator for subsequent price inflation. As a result, 5-year inflation expectations have fallen from 3.5% to 2.5% in the last month, as investors have begun to see some light at the end of the tunnel.