Week Ending February 17, 2017
Consumer prices post largest gain in nearly four years Wednesday, 15 Feb 2017 | 8:40 AM ET Source: http://www.cnbc.com/2017/02/15/us-consumer-price-index-jan-2017.html
“In the 12 months through January, the CPI increased 2.5 percent, the biggest year-on-year gain since March 2012.”
This past week various inflation measures were released with most reflecting results that were notably higher than consensus expectations. Over the last several months we have been watching a few different themes here in the Weekly View with resurgent inflation being one of them. With the most recent results it appears inflation is clearly taking center stage over its polar opposite known as deflation. The inflation/deflation question has been part of the economic backdrop since our last economic and market downturn in 2008.
The Federal Reserve and their fellow central bankers globally have created mountains of money post-2008. This creates a monetary backdrop to build the developing inflation story. This has been their objective with a focus of doing anything to steer clear of a deflationary environment whereby prices go consistently lower. They have stated this continually in the last decade-plus. Over the previous few months in particular, it appears deflation concerns are dissipating via the continued increases on the inflation front.
FEDERAL RESERVE BANK OF CLEVELAND
February 15, 2017
Source: https://www.clevelandfed.org
Part of the inflation data that was released this past week came in the form of the Consumer Price Index (CPI). The above table is an excerpt of various measures for consumer price changes.
The table reflects percentage changes from 12 months ago for each month identified. The Federal Reserve District Bank of Cleveland publishes additional measures under the “core inflation” data banner. This is simply a way to extract segments such as food and energy that are notoriously volatile and can skew the overall inflation results and trends. Their signature core measure is the last entry known as the “Median CPI” number.
As depicted, we can see this number has been in the mid 2 percent range which has consistently reflected levels of price inflation far higher than the first entry known as the overall CPI. Overall CPI includes food and energy which, as stated above, can skew the actual inflation trend in light of the volatility of those two segments in particular. While the trend for the Median CPI has been flat it certainly has been far more elevated than the overall CPI, that is, until recently.
Per the table we can see the overall CPI is now posting results up to the levels of the Median CPI. To emphasize, per the Median CPI, we have had elevated levels of inflation for many months to even recent years but they have remained flat-lined in the mid 2% range. With overall CPI picking up steam, the central question now is whether “core” measures of inflation, such as Median CPI, will also begin to trend upward.
For a friendlier visual perspective we share the chart below which displays both the Overall CPI (blue line) and the Overall CPI Less Food and Energy (red line) dating back five years to 2012. We can see inflation is certainly picking up and it is not a new phenomenon but rather an on-going development. If these trends continue price inflation will become a focused topic in the mainstream dialogue. We will share here in the View as this topic develops.
I wish you well…
Click for larger view: https://fred.stlouisfed.org/graph/?g=cKqT
Sincerely,
Ken Reinhart
Director, Market Research & Portfolio Analysis
Portfolio Manager, CAMS Spectrum Portfolio
Footnote:
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