The latest inflation data ruled the airwaves this week. Several key metrics economists and more importantly, the Federal Reserve watches, showed us that there are still hurdles to overcome during the second half of the year. Starting with the CPI (Consumer Price Index), the index rose 3.2% in July from 12 months earlier and marked a slight increase from 3% in June. The annual rate was slightly below expectations, but still ticked higher on a month-over-month basis. One of the reasons for the stubbornly high number was the steadfast holding in place of shelter costs. This increased by 0.4% and is up nearly 7.7% compared with one year ago. There had been expectations for shelter costs to begin trending lower, but as we have mentioned ourselves in these weekly updates over the last few months, the housing situation, while stabilizing, is showing some signs of a reversing course in many places. With hourly wages still climbing slowly, “rents paid” have held steady in recent months. It is a bit surprising to think prices haven’t really declined much given the backdrop of rising interest rates, but as has been the case for several years, the consumer remains engaged and spending. Another item we are watching closely is the uptick in oil prices. Elevated oil prices will keep the costs of goods and services higher as those fixed costs are often passed on to the end consumer.
The second leg of the monthly inflation data, the PPI (Producers Price Index), was released this morning. This metric gauges the costs that goods and services producers receive for their products as opposed to those that consumers pay, rose 0.3% for the month, according to the Bureau of Labor Statistics. Economists surveyed by Dow Jones had been expecting an increase of 0.2%. The main driver for the slightly higher PPI number was the costs of “portfolio management” which is a direct correlation to higher interest rates and energy and food related expenses. On the food side, wholesale prices for meat were substantially higher, while transportation costs and warehousing were also slightly more elevated. I also believe that higher fuel costs contributed to the slightly higher numbers. The Federal Reserve watches both metrics very closely. While the CPI tends to get more attention, the PPI can often be a leading indicator as we look further down the road at what is to come. For now, the expectations remain that the Fed will skip a rate hike at their September meeting, but as these newest data points prove, uncertainty in the months ahead still exists.
Chairman Powell will be attending a well followed conference in a few weeks. The Jackson Hole Economic Policy Symposium will be held from August 24th to the 26th. “Prominent central bankers, finance ministers, academics, and financial market participants from all around the world will gather in Wyoming’s Jackson Hole Valley to debate pressing economic and financial concerns. The Jackson Hole Symposium has historically been used by Fed chairs to give an update on the state of the economy and to hint at potential policy changes.” That is a mouthful to say the least, but the language used to describe this event is clear to me. The perceived “power players” from across the globe gather to discuss the state of not only the U.S. but the world. Many ears will be glued to the speech that Chairman Powell will give for any hints as to which way the Fed may be leaning in the closing months of 2023. While our world continues to evolve in many ways, the old adage of how the U.S. “goes” the world “goes” still rings true today. What is promising is that the rest of the world has been emerging from a long COVID nap. This should help to provide opportunities from an investing standpoint, in the years ahead.
Enjoy these last few weeks of summer!
Christopher E. Wasson, CFP®
Mosaic Asset Partners, LLC
1122 Kenilworth Drive, Suite 310
Towson, MD 21204
410.821.0089 fax 410.821.5993
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