Latest Inflation Numbers and Discussion

[Koolau]

My truck has a gauge that tells me my mpg at any given moment. It's like a stopped clock in relation to the number it shows when I switch it over to "average fuel economy." Other owners of a similar truck on a forum I frequent tell me the "average" number is optimistic.

I just went for my annual "wellness" checkup. I weighed myself at home that morning and, lo and behold, the scale at the doc's office said I was 3 lbs heavier than my home scale. Which scale is wrong? Maybe the doc wants to scare me into healthy living, or the bathroom scale folks just want to make me happy with their product.

Those are micro measurements compared to the macro scale of the US economy. If a pickup truck or a bathroom scale can't get measurements right, how much accuracy can you expect from a relatively small crew of statisticians dealing with millions, billions and trillions?

The world is full of uncertainty, people. We're more comfortable with "the truth, the light, and the way." But that's not the way the world works. Margin of error doesn't equal conspiracy.

I suppose in all such situations (mpg to weight on scales) it's good to see who benefits from "higher numbers" (or lower, as the case may be.) By the way, I've careful checked my mileage on both cars and one car reads 8% high every time and one car reads 4% high every time. Not huge errors, but folks who don't confirm the numbers might think their car is really great on mileage when it's exaggerated high. Could happen with any number where it can make "something" look better or worse. YMMV

 

[Montecfo]

Listening to the interview with Powell today. Nuggets:

-The "disinflationary process" has begun
-Balance sheet at $8.4T. Fed is shrinking it passively as securities mature and roll off.
-Securities sales not in view
-Expects to spend most of 2023 reducing inflation to the 2% target, speaking of Core PCE. Expects significant progress on inflation this year
-has no target for unemployment
-seeing disinflation in goods sector, not yet in services sector
-jobs data a bit surprising, underscores significant road ahead to reduce inflation
-wage increases moderating
-US debt level "unsustainable"
-treasury yields mostly fell modestly as he spoke, partially reversing a but of a runup last few days
-stocks rallied as he spoke but came off their highest levels near the end

 

[aja8888]

Listening to the interview with Powell today. Nuggets:

-The "disinflationary process" has begun
-Balance sheet at $8.4T. Fed is shrinking it passively as securities mature and roll off.
-Securities sales not in view
-Expects to spend most of 2023 reducing inflation to the 2% target, speaking of Core PCE. Expects significant progress on inflation this year
-has no target for unemployment
-seeing disinflation in goods sector, not yet in services sector
-jobs data a bit surprising, underscores significant road ahead to reduce inflation
-wage increases moderating
-US debt level "unsustainable"
-treasury yields mostly fell modestly as he spoke, partially reversing a but of a runup last few days
-stocks rallied as he spoke but came off their highest levels near the end

After investing since 1976, it's absolutely amazing to see how markets don't care much about fundamentals anymore and jump up and down on noise from one man who is an unelected official and works with the top bankers.

No wonder the stock market is nothing but a casino anymore.

 

[FREE866]

After investing since 1976, it's absolutely amazing to see how markets don't care much about fundamentals anymore and jump up and down on noise from one man who is an unelected official and works with the top bankers.

No wonder the stock market is nothing but a casino anymore.

The stock market is absolutely not a casino. At casinos the longer you stay you’re basically assured to lose. The stock market has decades of evidence showing the longer your time horizon you’re all but assured to win!

 

[Montecfo]

After investing since 1976, it's absolutely amazing to see how markets don't care much about fundamentals anymore and jump up and down on noise from one man who is an unelected official and works with the top bankers.

No wonder the stock market is nothing but a casino anymore.

At some level I do not disagree. But prevailing interest rates are actually the most important fundamental, since they determine prices of stocks more powerfully than any other single factor.

 

[FREE866]

At some level I do not disagree. But prevailing interest rates are actually the most important fundamental, since they determine prices of stocks more powerfully than any other single factor.

Interest rates are not good predictors of where stocks are heading. If that were the case stocks wouldn’t have had gangbuster returns in the late 70s and early 80s, for example.

 

[aja8888]

At some level I do not disagree. But prevailing interest rates are actually the most important fundamental, since they determine prices of stocks more powerfully than any other single factor.

I always thought a company's earnings had a lot to do with the price of a stock, but it's clearly not the case anymore.

 

[aja8888]

The stock market is absolutely not a casino. At casinos the longer you stay you’re basically assured to lose. The stock market has decades of evidence showing the longer your time horizon you’re all but assured to win!

Ask the folks in japan how things are going in their stock market after the last 30 years, and most of the Eurozone countries too!

 

[FREE866]

Ask the folks in japan how things are going in their stock market after the last 30 years, and most of the Eurozone countries too!

Well, I think on this board when we refer to the “ stock market” the index is US stocks.

 

[Montecfo]

I always thought a company's earnings had a lot to do with the price of a stock, but it's clearly not the case anymore.

Well it never was. Earnings matter, sure. Cash flow even better. But interest rates *price* those future cash flows by discounting them to the present value. The value of a stock is the discounted value of expected future cash flows.

Earnings generally rose in 2022 but stocks declined sharply. Why? Higher interest rates which discount the value of future cash flows from those same equities.

 

[Montecfo]

My sense is equity markets may be setting up for disappointment on the CPI. I am guessing the monthly figure may be higher than recent readings. I doubt the headline number can rise though.

We will see.

 

[Koolau]

I can't argue with the results of staying invested in the stock market (well, as mentioned, "our" stock market.) Having said that, the whole system seems "rigged" as the money supply is manipulated by the FED and the fiscal policies vary from time to time and party to party. I guess you could say it's the only game in town, but it's not "free" in the traditional sense of the word. YMMV

 

[explanade]

I would assume many of the ER members have significant equity assets.

Maybe people who are fortunate to have a generous pension with COLA wouldn't need to hold equities but otherwise?

Whatever has been happening in the market for the past year is probably not too different than what's been happening for the past 10 years, it not much longer.

 

[FLSUnFIRE]

Well it never was. Earnings matter, sure. Cash flow even better. But interest rates *price* those future cash flows by discounting them to the present value. The value of a stock is the discounted value of expected future cash flows.

Earnings generally rose in 2022 but stocks declined sharply. Why? Higher interest rates which discount the value of future cash flows from those same equities.

Agree 100% in the long game but shorter game can be impacted/obscured by emotion, tax policies and "sentiment." I'm bullish long term but don't trust the market day to day or year to year. The one thing I look at for a warm fuzzy feeling is the earnings yield and as long as my withdrawal rate is lower, I feel ok. Conceptually looking at it that I'm only spending a portion of the earnings and letting the rest ride makes me feel more confident I won't run out regardless of how the market values my assets day today. I'd feel fairly comfortable if I had a business that earned $500K and I spent $250K of that each year despite the lack of diversification so doing that with a diversified portfolio should, and does, allow me to not worry.

 

[OverThinkMuch]

My sense is equity markets may be setting up for disappointment on the CPI. I am guessing the monthly figure may be higher than recent readings. I doubt the headline number can rise though.

We will see.

T-minus 23 minutes to CPI print for Jan 2023.

Forecast is 6.2%. Even if CPI comes in on that target, I think the market gets some indigestion. After seeing back to back 0.6% CPI inflation drops (7.7% 7.1% 6.5% ...), a 0.3% drop could hint at inflation falling more slowly than expected.

I'm giving extra weight to "nowcast" inflation that suggests we could see a repeat of Dec 6.5% for Jan. I'm guessing 6.3% or 6.4% are possible, which would cause a market drop. A full 6.5% repeat would probably mean a market shock, and a larger drop.

My bias: I hold SPY put options, so I emphasize the negative possibilities because I'm investing based on those. But I'm also being patient, and this market seems overly optimistic and greedy right now (see CNN Fear & Greed index).

 

[Gumby]

January 2023 CPI is 299.17

Year over year inflation rate is 6.4%. Last six month's inflation is 1.95 % annualized. If no changes from here, the May 2023 I-Bond rate inflation component will be 1.6%.

Increase fuel costs were the primary driver this month, it appears.


Note that there has been a calculational change this month regarding weighting. To wit:

"JANUARY 2023 CPI WEIGHT UPDATE
Starting with January 2023 data, the BLS plans to update weights annually for the Consumer Price Index based on a single calendar year of data, using consumer expenditure data from 2021. This reflects a change from prior practice of updating weights biennially using two years of expenditure data."

 

[audreyh1]

Upward revisions to adjusted numbers Oct-Dec.

12 month unadjusted inflation dropped from 6.5% through Dec 22 to 6.4% through Jan 23.

BLS said shelter was the largest contributor last month. Their shelter index lags quite a bit I’m told, so I suspect it will be pushing up the CPI for a while.

The index for shelter was by far the largest contributor to the monthly all items increase, accounting
for nearly half of the monthly all items increase, with the indexes for food, gasoline, and natural
gas also contributing. The food index increased 0.5 percent over the month with the food at home index
rising 0.4 percent. The energy index increased 2.0 percent over the month as all major energy
component indexes rose over the month.

The Consumer Price Index for All Urban Consumers (CPI-U) increased 6.4 percent over the last 12 months
to an index level of 299.170 (1982-84=100). For the month, the index increased 0.8 percent prior to
seasonal adjustment.

https://www.bls.gov/news.release/cpi.nr0.htm

 

[Freedom56]

I think we can conclude that the prospects for a rate cut this year are gone. The market forecasts were clearly wrong. This report doesn't change the forecast for two more rate hikes of 25 basis points and resting there for the rest of the year well into 2024.

 

[FREE866]

I think we can conclude that the prospects for a rate cut this year are gone. The market forecasts were clearly wrong. This report doesn't change the forecast for two more rate hikes of 25 basis points and resting there for the rest of the year well into 2024.

It’s February. Lot of the year left.
Regardless, as an investor I don’t make decisions based on any monthly number.

 

[Gumby]

It’s February. Lot of the year left.
Regardless, as an investor I don’t make decisions based on any monthly number.

If prices held steady for the next for the next four months, we'd be down to 2.5% reported annual inflation by June, right in the Fed's sweet spot. I know that's a big "if", but I remain hopeful.

 

[joesxm3]

Do we know the core CPI? I can't seem to find it.


Another forum just said 5.6% year on year 0.4% month on month.

 

[Montecfo]

Do we know the core CPI? I can't seem to find it.


Another forum just said 5.6% year on year 0.4% month on month.

Yes, core was 0.4% and 5.6% versus an expectation of 0.3% and 5.5%.

 

[audreyh1]

Do we know the core CPI? I can't seem to find it.


Another forum just said 5.6% year on year 0.4% month on month.

Everything is in the CPI report released by the BLS.

Core = “all items less food and energy”
https://www.bls.gov/news.release/cpi.nr0.htm

 

[OverThinkMuch]

T-minus 23 minutes to CPI print for Jan 2023.

Forecast is 6.2%. Even if CPI comes in on that target, I think the market gets some indigestion. After seeing back to back 0.6% CPI inflation drops (7.7% 7.1% 6.5% ...), a 0.3% drop could hint at inflation falling more slowly than expected.

I'm giving extra weight to "nowcast" inflation that suggests we could see a repeat of Dec 6.5% for Jan. I'm guessing 6.3% or 6.4% are possible, which would cause a market drop. A full 6.5% repeat would probably mean a market shock, and a larger drop.

My takeaway: it's not useful to predict headline CPI, but may be useful to predict Fed measures like "super core" CPI.

Headline CPI forecast was 6.2%, but actual year/year CPI came in above at 6.3% and 6.4%. Yet the market was mixed... instead of a drop, S&P 500 moved up and down. Overall slightly higher than expected (ex-food/ex-energy, core), and a mixed reaction. It will take more than this CPI print to matter to markets.

 

[Montecfo]

Markets lower across the board. No big surprise. Will be interesting to see how the rest of the week goes and if sticks can regain their footing.