To my clients:
It was an up week for North American stock markets with the Canadian TSX finishing up 0.3%; the U.S. Dow Jones Index up 0.3%; and the U.S. S&P 500 up 1.8%.
Shortish update this week with brief comments on a pair of inflation reports.
Yesterday, the Consumer Price Index showed inflation both tick UP and exceed expectations for the month of December. This was both disappointing and surprising. BUT, I again point out that shelter costs were the main driver of the miss and stripping out shelter costs would have seen consumer inflation again tick down instead. And I also reiterate that the official shelter data significantly lags (by 6 to 15 months) other real time shelter indicators such as the Zillow Rent Index. Currently the Zillow Rent Index is almost 50% BELOW the official data!
But this morning, the Producer Price Index (i.e. a measure of inflation faced by manufacturers) showed a DECLINE of 0.1% in December (in other words, not that price inflation slowed by 0.1%, but that December prices actually were 0.1% LOWER than they were in November). For the full year, producer prices increased just 1.0% (note this is a full 1% BELOW the Fed’s 2.0% annual inflation target). Producer Prices might also be seen as a leading indicator of Consumer Price pressures.
Lastly, the U.S. Federal Reserve’s preferred inflation measure is the Core Personal Consumption Expenditure Price Index (Core PCE). With some tweaks, and counterintuitively, the Core PCE correlates more closely with the Producer Price Index than with the Consumer Price Index. As such, despite a rise in the more broadly followed Consumer Price Index in December, odds of a March rate CUT rose this week to over 80%. Time will tell how accurate that expectation proves to be.
That’s it for this week. All the best,
Nick
Nick Scholte, CIM, FCSI
Senior Portfolio Manager
Scholte Wealth Management
RBC Dominion Securities Inc. │ Tel: 604.257.7569 │ Fax: 604.235.9950
3200-1055 West Georgia │ Vancouver, BC │ V6E 3P3
Toll Free: 1.844.665.9900 │Email: nick.scholte@rbc.com
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