Dec 16, 2024

Sticky Inflation

The monthly numbers are out, and while the rate of inflation is well off the 2022 peak, price hikes remain uncomfortably high.

The U.S. Bureau of Labor Statistics reported that the Consumer Price Index (CPI) and the core CPI, which excludes food and energy, both rose 0.3% in November. The CPI is up 2.7% versus a year ago.

The core CPI held at 3.3% in November. And that illustrates a problem. Inflation has gotten stuck at a still-elevated level.

The annual core CPI has been running at 3.3% for 4 of the last 6 months (Fig 1).

A more detailed review highlights what’s driving inflation (Fig 2).

Supply chains have righted themselves, and the sharp rise in inflation for consumer goods has been replaced by deflation (falling prices).

It’s a different story for services. Historically, services such as rent, health insurance, and auto repair have risen at a faster rate than consumer goods.

At 4.5% annually last month, services remain high but are in a gradual downward trend.

Why do investors care? The slowdown in inflation has encouraged the Federal Reserve to reduce interest rates.

This week, the Fed is widely expected to cut the fed funds rate by another 25 basis points (bp, 1bp = 0.01%). If so, it will mark a total of 100 bp since September.

Given mostly upbeat economic data and still elevated inflation, it’s generally expected that the Fed will briefly pause its rate-cut campaign in January.

Few, however, believe the Fed will signal rate hikes, but it may take a more cautious approach to lowering rates in the new year.

If the Fed adopts a more thoughtful approach at Wednesday’s meeting, we may experience some short-term volatility.

Investors, however, are not entirely reliant on Federal Reserve rate cuts to drive stock prices higher.

While stocks are seemingly priced for perfection and any disappointments can create conditions for a pullback, economic growth and rising corporate profits remain supportive of stocks. Further, enthusiasm in artificial intelligence has yet to abate.

Reproduction Prohibited without Express Permission. Copyright FDP Wealth Management. All rights reserved. Advisory Services offered through FDP Wealth Management, LLC, a state Registered Investment Adviser and Valmark Advisers, Inc. a SEC Registered Investment Advisor. Securities offered through ValMark Securities, Inc., Member FINRA/SIPC. 130 Springside Drive, Suite 300, Akron, OH 44333-2431 800.765.5201 Prosperity Partners and FDP Wealth Management, LLC are separate entities from ValMark Securities, Inc. and Valmark Advisers, Inc. Prosperity Partners, FDP Wealth Management, LLC, ValMark Securities, Inc., Valmark Advisers Inc., and their representatives do not offer tax advice. You should consult your tax professional regarding your individual circumstances. Indices are unmanaged and cannot be invested directly in. Past performance is not a guarantee of future results.

Indices are unmanaged and do not incur fees, one cannot directly invest in an index. You should consult your tax professional regarding your individual circumstances. This information is provided by Financial Jumble, LLC. Financial Jumble, LLC is a separate entity from ValMark Securities, Inc. and ValMark Advisers, Inc.

RELATED POSTS

Manufacturing in Crisis

The Federal Reserve held its key rate, the fed funds rate, at 4.25 – 4.50% as expected. But Fed officials downgraded the economic outlook for 2025 and raised its forecast for inflation (again) in its quarterly Summary of Economic Projections.

Elevated Uncertainty, ‘Transitory’ Makes a Comeback

The Federal Reserve held its key rate, the fed funds rate, at 4.25 – 4.50% as expected. But Fed officials downgraded the economic outlook for 2025 and raised its forecast for inflation (again) in its quarterly Summary of Economic Projections.

Entering a Market Correction

The February Consumer Price Index came in softer than expected, rising 0.2%, according to the U.S. BLS. The core CPI, which excludes food and energy, also rose 0.2%. The core CPI slowed to an annual rate of 3.1% from 3.3% in January. February’s rate was the slowest since early 2021.

Tariffs On, Tariffs Off, Tariffs Back On (Sort of)

There are times when the economic data is strong, and when considered together, the economic reports surpass expectations. Such cycles run their course, and the economic reports turn softer. That overperform/underperform cycle can repeat itself multiple times during an economic expansion until the economy finally rolls over, and we land in a recession.

A Whiff of Uncertainty

There are times when the economic data is strong, and when considered together, the economic reports surpass expectations. Such cycles run their course, and the economic reports turn softer. That overperform/underperform cycle can repeat itself multiple times during an economic expansion until the economy finally rolls over, and we land in a recession.