Inflation growth is rapidly approaching the Federal Reserve's 2% target.

Later this week, the U.S. Bureau of Labor Statistics will release the inflation growth indicators for September. When this data is released, it will show that price pressures have reached their lowest level since February 2021. This change will support our central bank in further lowering interest rates, providing support for a stable rebound in risk assets such as Bitcoin.

But don't just take my word for it, let's see what the data tells us.

Every month, the Federal Reserve Banks of Dallas, Kansas City, New York, and Philadelphia ask manufacturers in their districts about the state of activity. The questionnaire inquires about these companies regarding new orders, delivery times, employment, and production. It also asks whether costs are rising, falling, or remaining the same.

But we must focus on "the price of goods." This figure indicates the prices that customers pay for the finished products of manufacturers. This is similar to the Consumer Price Index (CPI). Therefore, the direction of received prices is an indicator of whether inflation is rising or falling.

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Now, the states where these four banks are headquartered—Texas, Missouri, New York, and Pennsylvania—account for approximately 25% of the U.S. domestic economic output. Thus, we can have a pretty good understanding of national demand. Moreover, these results are released before the CPI, so it's like getting a preview of the data.

And the latest readings indicate that received prices have declined...

Combine the readings from the four central banks into a composite index. This index is called the Composite Price Received Index (CPRI), represented by the blue line. It has been compared with the Consumer Price Index (CPI, orange line). As you can see, the CPRI tends to be a leading indicator. It reached its peak in October 2021. However, it wasn't until June 2022 that the CPI finally reached its highest point in over 40 years before starting to decline.

As you notice in the chart above, my index maintained a stable trend in 2019 and early 2020. Inflation growth followed suit, always remaining below 2%. But when businesses sent employees home at the beginning of the pandemic, the CPRI index fell. As the economy reopened, the index began to rise again. In each case, we can see similar behavior from the CPI, but with a lag.

Now, the CPRI trend appears to be stabilizing. This change occurs against the backdrop of seeing consumers' excess COVID savings gradually disappearing and consumption slowing down. This means that individuals are becoming more sensitive to prices and are more inclined to keep their money.In December 2023, the indicator read 8.4. The reading from the previous month was 8.8. In fact, so far this year, the index has remained between 5 and 10. This is significant because the longer it remains stable, the greater the likelihood that inflation growth will slow down. The annualized reading will reduce the earlier higher numbers, helping to bring the CPI back below the target of 2%.

Over the past three months, inflation has been increasing at a rate of 0.1% per month. If this pace continues, we may see the annualized growth drop to 1.5% by March 2025.

As you can see, the economic team of the regional central bank forecasts that the overall CPI will decrease from 2.5% in August to 2.3% in September. This would be the lowest reading since March 2021, when inflation data began to rise sharply.

As I mentioned at the beginning, price growth is slowing down. Manufacturers tell us that they are increasingly finding it difficult to pass on the pressure of price increases to consumers. Moreover, if my model is correct, we will soon see inflation growth return to 2%.

Therefore, do not be surprised when the report later this week confirms what my indicator suggests. The easing of price pressures should strengthen the Federal Reserve's confidence in the slowdown of inflation growth. This will provide room for the central bank to further lower interest rates. This change will be a boost for the long-term stable rise of risk assets denominated in dollars, including Bitcoin and Ethereum.