Stubborn, hot, and sticky
Inflation Report February 13, 2024
A not so silent print:
The Fed’s inflation numbers today took the market by surprise pausing the fiery market upside. The 12-month period through January came in at 3.1% versus an expected 2.9%, disappointing the market which was hoping for an early rate cut.
The NYT called it “stubborn” (January Inflation Report: Prices Are More Stubborn Than Expected - The New York Times (nytimes.com)
Reuters called it “hot” Wall St ends sharply lower as hot inflation sparks sell-off | Reuters
The WSJ called it “hotter than expected” Stock Market Today: S&P 500, Dow Close Sharply Lower After Inflation Data (wsj.com)
It wasn’t surprising to me as you see it right in front of you in so many factors of everyday life.
Sticky
Sticky Price Consumer Price Index (STICKCPIM157SFRBATL) | FRED | St. Louis Fed (stlouisfed.org)
Certain parts have declined providing some welcome relief to some.
Energy:
Others continue to rise:
12-month percentage change, Consumer Price Index, selected categories (bls.gov)
The challenge the market is facing is the question of the Fed’s rate policy this year. It has broad implications. To me the largest is how much it can help the banks and the commercial estate sector. But because it’s the foundation for pricing on credit card debt and other loans, it hits the middle class quite hard.
I keep saying to a few clients that this bout of inflation is a bit different than prior period as we have a significant divide between the wealthy, who are relatively immune to inflation, and to average Americans, who are not. They feel it at the end of the month.
Inflation changes the behavior of American families forcing them to make rationale decisions on personal consumption (less night outs), and to switch out types of food/products – steak for chicken for eggs for pork, etc. But not everyone does this, in fact quite a few people can’t. And in certain instances – insurance, gas, other necessities – you are a price taker, and it hits your consumption. It also creates an unhealthy but understandable friction as it gets passed on by sellers/producers of products. There is a limit to how much Coke can pass in its inflation.