Prices Moving Higher or Lower?
Last week we received conflicting economic information reported by Barron’s Magazine ¹ . Tuesday’s Consumer Price Index (CPI) report showed a January increase of .5%, shocking many investors, followed later in the week with Retail sales reporting a .9% drop in January.
The first report detailed how the price of goods and services jumped. Then the retail purchasing report suggested consumers pulled back significantly in January after a robust Holiday purchasing season.
First, the .5% inflation report. Contributing to this high number were Shelter Costs, Energy, Auto Insurance Travel, Eggs and more. I do believe inflation is a hard nut to crack: however, the .5% should not lead to conclusions about the higher direction of inflation, just yet!
It was only a couple of months ago; our Federal Reserve Chairperson Powell expressed concern that the economy was slowing. After a couple of government reports made the slowing suggestion, Powell immediately reduced rates at the September 2024 meeting by .50% and then by .25% in November and suggested there were more rate cuts to come.
The bond market did not agree with Powell. After Powell reduced the discount rate in September and November, our 10-year US Treasury yield moved higher by just under 1%. Hmmm!! Was the January inflation reading of .5% a warning? Was it simply a “one-off”? The next Consumer Price Index (CPI) report will be reported on March 12ᵗʰ for February. If the number repeats, inflation concerns will obviously become elevated. Let’s hope for a monthly inflation report of somewhere between .2 and .3. Most of you know my intermediate term forecast for annual inflation lies in the range of 3 to 3.5%. The sheer fact is that the largest generation in our population, the Millennials, are approaching their peak earning years. With the largest portion of our population making good money, it’s hard to imagine inflation not remaining around 3% plus, unless the economy has a pullback.
Inflation: Supply vs Demand
With many moving parts to our economy and abroad, let us not forget the main drivers of pricing.
When the supply of goods is greater than the demand, prices typically fall. On the opposite side, when the supply of goods is not keeping pace with demand, prices typically increase.
How can we place our supply and demand in equilibrium? The answer has become more illusive over the recent years.
Years ago, we shipped our Textile clothing industry out of the United States. To me, this seems like yesterday as my dad went from one US Textile company to another, until they all went overseas, mostly to China. It was not too long thereafter the automobile manufacturing and assembly left the United States. Recently everyone realized the computer chip manufacturing business is mostly abroad.
One thing for sure, we will know in the not-too-distant future how the Trump Administration’s plan regarding Trade and Tariffs will impact supply and demand and most importantly, the performance of our overall economy.
National Debt Impact
With so many moving parts to our economy and abroad, let us not forget the main drivers of pricing.
When the supply of goods is greater than the demand, prices typically fall. On the opposite side, when the supply of goods is not keeping pace with demand, prices typically increase.
How can we place our supply and demand in equilibrium? The answer has become more illusive over the recent years.
Years ago, we shipped our Textile clothing industry out of the United States. To me, this seems like yesterday as my dad went from one US Textile company to another, until they all went overseas, mostly to China. It was not too long thereafter the automobile manufacturing and assembly left the United States. Recently everyone realized the computer chip manufacturing business is mostly abroad.
One thing for sure, we will know in the not-too-distant future how the Trump Administration’s plan regarding Trade and Tariffs will impact supply and demand and most importantly, the performance of our overall economy.
Markets Moving Higher
Stock and Bond indexes finished higher last week and are positive for the year.
Bonds have moved higher, mostly due to interest rates on the 10-year US Treasury falling from 4.57% at the beginning of the year, closing at 4.478% last week. The yield even dropped after last week’s hotter than expected CPI read.
For the week:
- Dow + .66%
- S&P 500 + 1.61%
- Nasdaq + 2.45%
- Russell 2000 + .07%
- Foreign Stocks + 3.12%
- Emerging Mkts + 2.67%
The heightened economic/policy situation has certainly stirred up much debate and controversy. If you closed your eyes on 12/31/24, did not pay attention to any market news, just the political back and forth, you probably would not believe the S&P 500 is up over 4% so far in 2025.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
