Yesterday, September’s consumer price index (CPI) report showed that inflation ran hotter-than-expected last month, increasing the odds for more rate hikes and a recession. And that data led the stock market lower.

But the market may have misinterpreted yesterday’s inflation report. And as a result, this selloff could be one of the best buying opportunities of the year. 

Investors got spooked because headline CPI rose 3.7% year-over-year, more than the 3.6% forecasted by economists. But when it comes to these reports, the devil’s in the details. And the details tell a much different story than the headline number. 

Inflation can essentially be broken into four components: housing, food, energy, and everything else. 

The “everything else” category is crashing and is now already back to “normal.” 

Inflation excluding housing, food, and energy rose just 1.95% in September, below the Fed’s 2% target. And that’s also the lowest rate we’ve seen in years. Outside of housing, food, and energy, inflation is running at very “normal” levels these days. 

Of course, we don’t live in a world without housing, food, and energy costs, so the aforementioned metric doesn’t really matter by itself. 

But it does matter when all indicators suggest housing, food, and energy inflation are all collapsing, too. And that’s exactly the situation we have right now. 

The Data Indicates Inflation Is Collapsing

Shelter CPI rose 7.2% in September. That’s far too high; but it is declining. And leading indicators – such as asking rent prices as measured by Zillow’s observed rent index – suggest shelter CPI will keep falling toward 2% over the next 12 months. 

Shelter is about 35% of the CPI basket. As it continues to fall, it will really help pull down overall inflation rates. 

Meanwhile, food inflation continues to fall and should keep falling. 

Food CPI dropped 60 basis points in September, consistent with the 60-basis-point drops it has been posting throughout 2023. Leading indicators here – such as the UN’s world food price index – suggest food CPI will keep dropping, too. 

Food is about 15% of overall CPI. 

And perhaps most importantly, the energy reinflation we saw in late summer is slowing dramatically. That means energy inflation could start to drop again in the coming months. 

Energy CPI rose about 310 basis points in September. But that is much slower than its rise in July (+420 basis points) and August (+890 basis points). In fact, it marks the slowest pace of energy reinflation in this cycle. 

Meanwhile, commodity prices are crashing in October. Just look at the price of oil, which has dropped from $93 to $83 in just a few weeks. It seems likely that energy CPI is about to return to disinflation. 

When you connect those dots, the bigger picture here becomes crystal-clear. 

Excluding housing, food, and energy, inflation has already returned to 2%. Housing is on its way to 2%. So is food. And energy inflation – which is running negative – will likely stay weak. 

There are a lot of pundits out there saying it will be tough to get back to 2% inflation. Some are saying we even need a recession to get there. 

But the data doesn’t support that thesis. 

Rather, the data shows that we’re on cruise control back to 2% inflation.

The Final Word

Yes, inflation rates rose in July and August. But we’re confident that was just a bump in the road. The most bullish part about yesterday’s inflation report? It showed that despite rising in July and August, inflation rates didn’t rise in September.

Now it’s going to start falling again in October. 

The Cleveland Fed’s highly accurate Nowcast inflation forecasting model sees the CPI inflation rate dropping significantly to 3.4% in October. The summer of reinflation is over. And now the fall of disinflation can begin. 

What does this mean for stocks? 

They’re likely to soar in the fourth quarter. As inflation rates fell from July 2022 to July 2023, stocks rocketed higher. They struggled in August and September 2023 as rates rose again. Now they should soar again in Q4 as rates continue their decline. 

So… back up the truck, buy the dip, and hold on for a big boom over the next few months. 

You won’t be sorry. 

Find out the best stocks to buy for this Q4 rally.

On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.