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Mosaic Asset Partners - Sticky Inflation Data Makes For An Interesting Week

March 15, 2024

This was an interesting week for our financial markets as stickier- than-expected inflationary data continued to keep us all guessing. On Monday, a survey conducted by the New York Federal Reserve pointed out that consumers are increasingly doubtful that the Fed can achieve its inflation goals anytime soon. While the outlook over the next year was unchanged at 3%, that wasn’t the case for the longer term. At the three-year range, expectations rose 0.3 percentage point to 2.7%, while the five-year outlook jumped even more, up 0.4 percentage point to 2.9%. The 2% inflation target the Fed has long discussed just doesn’t seem realistic any time soon and it appears that consumers are simply settling into the fact that higher prices are here to stay.

On Tuesday we received the CPI (Consumer Price Index) readings which followed closely with the news from Monday. The consumer price index, a broad measure of goods and services costs, increased 0.4% for the month and 3.2% from a year ago. The monthly measure was in line with expectations while the 12-month reading was slightly higher. The core CPI rose 0.4% on the month and was up 3.8% on the year. Both were one-tenth of a percentage point higher than forecast. Slightly higher energy and shelter costs were the main culprits while food prices stayed flat (for a change!). The positive takeaway is that the 12-month pace is well off the highs from the summer of 2022, but far from the 2% target rate. “Inflation continues to churn above 3%, and once again shelter costs were the main villain. With home prices expected to rise this year and rents falling only slowly, the long-awaited fall in shelter prices isn’t coming to the rescue any time soon,” said Robert Frick, corporate economist at Navy Federal Credit Union. I mentioned last week that the Spring housing market is kicking into high gear and, so far, buyers are not backing away from higher costs and higher rates.

Finally on Thursday we saw the producer price index (PPI). The PPI measures pipeline costs for raw, intermediate, and finished goods. This reading jumped 0.6% on the month, double the Dow Jones estimate. On a year-over-year basis, the headline index increased 1.6%, the biggest move since September 2023. The PPI is considered a leading indicator for inflation as it indicates costs early in the supply chain. At this point it remains clear that the Fed will more than likely hold interest rates steady when it meets next week. The forward-looking futures market is still pricing in a cut in June, followed possibly by three more before the end of the year, according to the CME Group. As is usual with all Fed meetings, the rhetoric behind their outlook for rates, economic growth, inflation, and unemployment will be ever important.

At this point it’s feeling like a little bit of a broken and skipping record playing the same song over and over. The perceived “holding pattern” we are stuck in is not over just yet. I still believe strongly that this current position is much better than where we sat a year ago. While it feels a bit frustrating to not know if we are moving forward or backward, staying status quo is okay. We don’t want the Fed acting irrationally and thus far they have done a good job at keeping us on track. Let’s hope it stays that way!

Have a nice weekend!

https://www.cnbc.com/2024/03/11/long-term-inflation-expectations-rise-spelling-possible-trouble-for-the-fed-survey-shows.html?__source=iosappshare%7Ccom.apple.UIKit.activity.Mail

https://www.cnbc.com/2024/03/12/cpi-inflation-report-february-2024-.html?__source=iosappshare%7Ccom.apple.UIKit.activity.Mail
https://www.cnbc.com/2024/03/14/producer-price-index-february-2024-wholesale-inflation-rose-0point6percent-in-february.html?__source=iosappshare%7Ccom.apple.UIKit.activity.Mail

Christopher E. Wasson, CFP®

President

Mosaic Asset Partners, LLC

1122 Kenilworth Drive, Suite 310

Towson, MD  21204

410.821.0089         fax 410.821.5993

MosaicAssetPartners.com  

Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. Mosaic Asset Partners, LLC is not affiliated with Kestra IS or Kestra AS.  Investor Disclosures: https://www.kestrafinancial.com/disclosures

The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra IS or Kestra AS. The material is for informational purposes only. It represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. It is not guaranteed by Kestra IS or Kestra AS for accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security.