Now is the time to buy stocks as inflation is clearly decelerating and investors can't wait around worrying about a recession, Leuthold's Jim Paulsen says

• Now is the time to buy stocks, regardless of recession concerns, according to Jim Paulsen.
• He says falling inflation is the most important indicator the market has already bottomed out.

Slowing inflation means the market has already bottomed out earlier this year, and investors should jump into the market even if they're concerned about a looming recession, according to Leuthold Group's Jim Paulsen.

The bullish take comes after a disappointing Consumer Price Index report, which showed August inflation clocked in at 8.3%. That's lower than the 8.5% recorded in July, but slightly above expectations, and sparked the largest single-day decline in the stock market in over two years.

It also solidified expectations for at another 75-point rate hike from the Federal Reserve next week, raising fears that the central bank could steer the economy into a recession with its aggressive policy.

But inflation is cooling – and that's the only indicator that matters when determining a market bottom, Paulsen argued.

"The fact of the matter is that once inflation has peaked, the stock market has bottomed, and I think the next move is probably up," Paulsen said in an interview on CNBC.

If inflation continues its current downtrend, that would imply peak inflation was in June, when the S&P 500 finished its worst first-half in over 50 years.

And Paulsen is bullish that inflation will continue to come down: prices are falling across the board in imports, retail inventories, and commodities – particularly in energy prices, which has been a major driver of inflation this year. Gas now costs around $3.70 per gallon on average, according to the AAA, with potential to slide below $3 soon.

The 2-year breakeven inflation rate, a measure of inflation expectations two years from now, shows inflation below 2% by 2024, suggesting markets are confident that prices will continue to come down steadily.

"I think it's very clear to me that inflation number one, has peaked, and number two, is coming down broadly," Paulsen said.

He pointed to the last six inflation spikes above 6% since 1940, and noted that five of them recorded a market bottom when the economy hit peak inflation. That happened regardless of whether the economy tipped into a recession, which it did on four of the six occasions.

"On major inflationary peaks, you can't wait for inflation to get all the way back down to where the Fed wants it to get. You have to buy when inflation peaks," he said.