Sep 18, 2023

A Tricky Inflation Number

Weekly Market Commentary

Progress on inflation won’t be in a straight line. That’s to be expected. Following two low readings in June and July, the number picked up in August.

It wasn’t unusually concerning. But following a 0.2% monthly increase in the Consumer Price Index (CPI) in June and July, the CPI rose 0.6% in August, as gasoline prices surged 10.6%, according to the U.S. Bureau of Labor Statistics.

The core CPI, which excludes food and energy, was also up 0.2% in June and July. It increased a more modest 0.3% last month.

Figure 1 illustrates the trend in the core rate of inflation. Progress has been uneven, as highlighted by the four-month average. Note the three instances (data circled in red) when inflation slowed but was followed by an acceleration.

While the Fed will probably look past the jump in the headline CPI, which was driven primarily by energy, the modest uptick in the core CPI highlights that progress on inflation is taking time. It adds ammunition to the idea that interest rates could stay higher for longer.

Interest Rates

Last month, Fed Chief Jerome Powell reiterated, “It is the Fed’s job to bring inflation down to our 2 percent (annual) goal, and we will do so.”

Last year, when inflation was galloping ahead, the Fed’s bite was as bad as its bark.

This year, anti-inflation rhetoric hasn’t subsided, but the rate of inflation has slowed, and there seems to be less urgency to get inflation back to 2%, especially if it means a recession.

From March through September 2022, the Fed raised the fed funds rate by 300 basis points (1 basis point = 0.01%).

This year, the Fed has raised its key rate by 100 basis points through July. A closely watched gauge from the CME Group puts odds at 97% (as of Sep 15, 2023) that the Fed will hold its key rate at 5.25-5.50% at this week’s meeting. A November increase can’t be ruled out.

There’s no guarantee the slowdown in the rate of inflation will continue, but the recent moderation in rate hikes is tied to several issues, including the fear of overtightening.

Reproduction Prohibited without Express Permission. Copyright FDP Wealth Management. All rights reserved. Advisory Services offered through FDP Wealth Management, LLC, a state Registered Investment Advisor. Securities offered through Valmark Securities, Inc., Member FINRA/SIPC | 130 Springside Drive Suite 300 Akron, OH 44333-2431 | 800.765.5201. FDP Wealth Management, LLC is a separate entity from Valmark Securities, Inc. If you do not want to receive further editions of this weekly newsletter, please contact me at (949) 855-4337 or e-mail me at or write me at 8841 Research Drive, Suite 100, Irvine, CA 92618. FDP Wealth Management, LLC, Valmark Securities, Inc. and their representatives do not offer tax or legal advice. You should consult your tax or legal professional regarding your individual circumstances. Indices are unmanaged and cannot be invested directly in. Past performance is not a guarantee of future results.


How Do Investors Spell Relief?

Investors celebrated an ‘in line with expectations’ CPI that suggested the rate of inflation isn’t accelerating. It’s a small win, but it was enough to send the three major market indexes, the Dow, the Nasdaq, and the S&P 500 to new highs.

An Annual Ritual at the Gas Pump

You’re right if you have this nagging feeling that gas prices rise in the spring. As the graphic illustrates, on average prices rise through Memorial Day, plateau over the summer, and slip in the fall. This year is no exception, as prices echo the seasonal pattern.

Rate Cuts Still on the Table, Timing Less Certain

We often discuss the Federal Reserve and interest rates because both greatly impact investors. For starters, changes in interest rates have a significant impact on stock prices and income earned on savings. Sharply higher rates in 2022 pushed equities into a bear market.

Just Do It

That ubiquitous phrase from one of America’s most extensive athletic footwear and apparel makers seems to have been adopted by most American shoppers. The U.S. Census Bureau reported last week that retail sales jumped 0.7% in March, following a strong 0.9% rise in February.

The Road to Lower Inflation Takes a Detour

The rate of inflation is accelerating. That’s not how we hoped to start this week’s Insights. Take a moment and review Figure 1. The 4-month moving average has broken out of its long-term downward trend (red-dashed lines). On a monthly basis, prices bottomed in June and began to gradually turn higher. The upward trajectory picked up in January.