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Mosaic Asset Partners - The CPI Data Gave Us Our First Hiccup Of The Year

February 16, 2024

The header for this week’s update says it all. After a strong end to 2023 and a rather healthy state to end the year, we saw our first crack in the underlying foundation this week. The consumer price index (CPI) increased 0.3% in January, the Bureau of Labor Statistics reported. On a 12-month basis, that came out to 3.1%, down from 3.4% in December. Economists surveyed by Dow Jones had been looking for a monthly increase of 0.2% and an annual gain of 2.9%. Shelter prices accounted for much of the rise, climbing 0.6% on the month, contributing more than two-thirds of the headline increase. On a 12-month basis, shelter rose 6%. The “crack” appeared from the standpoint of what and how the Federal Reserve will respond to these fresh data points. “Inflation is generally moving in the right direction,” said Lisa Sturtevant, chief economist at Bright MLS. “But it’s important to remember that a lower inflation rate does not mean that prices of most things are falling — rather, it simply means that prices are rising more slowly. Consumers are still feeling the pinch of higher prices for the things they buy most often.” The Fed made it clear in the last few weeks that while things are moving in the right direction, the “higher for longer” mantra on interest rates is the path for now.

Two more pieces to the economic roller coaster came out this week as well, retail sales and the PPI (Producer Price Index). The retail sales data showed that consumer spending dipped significantly in January versus expectations. A decline was expected of 0.3%, but the number came in much higher at 0.8%. It is not uncommon to see a move lower in January, post holidays, but this degree of a pullback was a surprise. “It’s a weak report, but not a fundamental shift in consumer spending,” said Robert Frick, corporate economist for Navy Federal Credit Union. “December was high due to holiday shopping, and January saw drops in those spending categories, plus frigid weather plus an unfavorable seasonal adjustment. Consumer spending likely won’t be great this year, but with real wage gains and increasing employment it should be plenty to help keep the economy expanding.” I love the optimism here from Mr. Frick, but we do need to be mindful of the bigger picture.

The producer price index for January, a measure of wholesale inflation, increased 0.3%. Economists polled by Dow Jones had anticipated a gain of 0.1%. Excluding food and energy, core PPI increased 0.5%, higher than the expectations for a 0.1% advance. Think of wholesale inflation as the selling prices received by domestic producers or manufacturers for their output. The “go between” if you will! This is another important metric used to track the health and wealth of the consumer and economy. A month’s worth of data is not enough to get us concerned just yet in my view. I simply believe there is fatigue throughout the system. We just came off a red-hot year in many ways that was as confusing as it was surprising. I think it’s all perspective right now.

China is living through an 18-month recession, the U.K. is in a technical mild recession, and Japan recently stated that their economy contracted for the second consecutive quarter triggering recession concerns.  In some ways it makes me wonder how can we not experience the same issues? In the past we would simply spend our way through to the other side. Those options don’t really exist in the same way today. There are positives to focus on, however. Wage growth remains relatively stable, even in the face of cuts in certain other parts of the economy. A technological innovation wave is in the early stages of blossoming. Artificial intelligence is opening new doors to lowering costs and how we operate in our daily lives. And finally, the Federal Reserve has dry powder to cut rates aggressively (if needed). So, while the rest of the world endures their own economic headwinds, we have comfort in knowing that there are new and better tools we can use if and when necessary. I won’t let one “hiccup” slow me down just yet!

Have a wonderful weekend.

Christopher E. Wasson, CFP®


 Mosaic Asset Partners, LLC

1122 Kenilworth Drive, Suite 310

Towson, MD  21204

410.821.0089         fax 410.821.5993  

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:

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.