There are many reasons why economics is called the dismal science. One of those reasons is when bad news could be good news. This contradiction works when you need negative economic data to show that inflation might be falling and that the Reserve Bank’s aggressive interest rate rises are actually working to reduce the Consumer Price Index (CPI).

After looking at the recent run of economic data, I was keen to share the bad news with you, so we could look forward to the good news that the RBA might soon ease up on rate rises. This is especially significant after the US central bank chairman Jerome Powell recently delivered his “not over yet” speech at Jackson Hole, which meant higher interest rate rises are still on his agenda. This took a 1000-points off the Dow Jones Index and slugged our stock market on Monday.

And as I contemplated how the run of bad economic news might be good news for inflation/interest rate worriers, AMP economist Diana Mousina came out with this headline for her newsletter: “Have we reached peak inflation?”

Here are AMP’s economics team’s main points in their Econosights email:

1. A peak in inflation (in annual terms) has likely been reached in the US, while Australia is lagging behind and is likely to see a peak in December 2022. Extremely high European energy prices means Euro inflation will increase further and may not peak until 2023.

2. But inflation is unlikely to be heading back to its pre-Covid levels of ~2% per annum or less, and we expect it to remain “sticky” in 2023 around 3-4% in the US and Australia, which means central banks aren’t done with rate hikes.

This wasn’t the best news for interest rate worriers but if US inflation has peaked and it shows up in the September 13 CPI number in the States, then stock market players could get into the buy mood again. Of course, if it’s not a good reading, then the thinking will be that more rate rises are ahead and stocks prices would dive.

This is the chart that Diana says shows inflation has probably peaked.

The black line is the AMP Pipeline Inflation indicator. See how it’s falling and the red line (the CPI) has also started to fall but it’s lagging the Pipeline indicator.

That’s good news for the US, but AMP thinks that here our inflation will take time to peak because of a 12-13% spike in rents, expected wage rises and elevated energy prices.

Against that, I’ve seen some evidence that interest rate rises are starting to bite. Check this out:

1. The weekly ANZ-Roy Morgan consumer confidence index fell by 0.7% to 85 points (long-run average since 1990 is 112.2 points).

2. Consumer views on whether it’s a ‘good time to buy a major household item’ dropped by 5.5% last week to a 28½-month low of -28.2 points.

3. The number of dwelling approvals fell by 17.2% in July to 13,595 units. It was the second biggest monthly percentage decline since December 2017. Approvals are down 25.9% on a year ago — ouch!

4. Approvals for private sector houses rose by 0.7% in July, but approvals for private sector apartments (i.e., dwellings excluding houses) fell by 43.5% to 3,439 units – the lowest level since January 2012!

5. The Internet Vacancy Index (IVI) from the National Skills Commission fell by 3.8% in July (or by 11,249 available positions) to 288,465 available positions. Recruitment activity decreased for the first time in seven months, with the number of vacancies down from a 14-year high of 299,714 positions in June.

6. Earlier this month, Core Logic reported that house prices were “falling at their fastest rate since the early 1980s recession, and rising interest rates could see 30% wiped off values”.

What we’re seeing is a good start in bad news but I suspect we’ll need a fair bit more before the RBA backs off its interest rate rise program. However, despite the tough talk from Mr Powell at Jackson Hole, if the next inflation number falls into the 7% band, he could easily ease up on his aggressive rate rises.