Home Guides & Resources chevron_right Investing Signal From Static: Inflation Fears Roar Back (in the Discourse, That Is) Published January 30, 2023 Daniel P WienerChairman Inflation is rising, but not as measured by consumer or producer prices. Pundits, and particularly those who misjudged inflation fears on the way up (or now on the way down), are arguing we need a different method for measuring it. It’s as if—because they couldn’t predict inflation accurately in years past—it’s the measure that must be wrong, not the predictions. Inflation fears peaked shortly after June’s high-water mark of 9.1% (which declined to a 6.5% year-over-year rate by the end of 2022). But it feels as though the noise around inflation is still on the ascent. Remember “transitory” inflation, the term Federal Reserve policymakers first used in March 2021? Their notion was that rising inflation would reverse quickly without much ado. Along with many others, I thought the transitory theme was put to rest well before 2021 ended, as inflation rose from 2.6% to 7.0%. Not to mention that it kept rising in five of 2022’s first six months. Yet, in the past week or so, the notion of inflation as transitory has come back into the conversation. The argument is that you just have to look at the individual components of inflation to see which are transitory and which aren’t. What? That’s like saying a beef stew is low calorie if you focus solely on the celery and carrots. The U.S. Labor Department’s two main measures of consumer inflation are the consumer price index (CPI) and the core consumer price index, which strips out food and energy prices in an effort to gauge inflation without the impact of these two more volatile components. The more recent parsing of the inflation data has also led to calls to focus on something called supercore inflation. Like core, supercore ignores food and energy prices while also stripping out housing, which is similarly volatile. Note: Chart shows year-over-year changes in the consumer price index and core consumer price index (not seasonally adjusted) on a monthly basis from December 1999 through December 2022. Source: U.S. Bureau of Labor Statistics. From where I sit, all the navel gazing on inflation is itself likely to be transitory. Whether the pundits think that transitory inflation elements or supercore prices or something else altogether might tell a more nuanced inflation story, the bottom line is that consumers, investors and even the U.S. government will continue to count on two long-standing measures: The CPI and the PCE (personal consumption expenditures index), which is the Fed’s “preferred” measure. Not some variant. And right now, both government indexes say inflation is falling and should continue to do so. That’s the headline that matters most. This material is distributed for informational purposes only. The ideas and opinions contained herein should not be viewed as recommendations or personal investment advice. Data and statistics contained in this report are obtained from what we believe to be reliable sources; however, their accuracy, completeness or reliability cannot be guaranteed. Our statements and opinions are subject to change without notice. You may request a free copy of the firm’s Form ADV Part 2, which describes, among other items, risk factors, strategies, affiliations, services offered and fees charged. Past performance is not an indication of future returns. Tax, legal and insurance information contained herein is general in nature, is provided for informational purposes only, and should not be construed as legal or tax advice, or as advice on whether to buy or surrender any insurance products. Personalized tax advice and tax return preparation is available through a separate, written engagement agreement with Adviser Investments Tax Solutions. We do not provide legal advice, nor sell insurance products. Always consult a licensed attorney, tax professional, or licensed insurance professional regarding your specific legal or tax situation, or insurance needs. For a summary of Adviser Investments’ advisory services and fiduciary responsibilities to our clients, please review our Form CRS here. © 2023 Adviser Investments, LLC. All Rights Reserved. Tags: CPIDan WienerinflationSupercoretransitory