A Month is Not a Trend

| May 17, 2024

One of the great things about the United States is the ample quantity and quality of information that is available for free. Seated at my breakfast table, I can feed my inner geek with statistics and graphs from the Bureau of Labor Statistics (BLS) and the St. Louis Fed.

I am not obsessed with the monthly inflation numbers produced by the BLS though. It always amuses me how the various papers that I read frame the numbers in their headlines. One would think that they had different information. Nevertheless, I do not think that much can be inferred from one month’s numbers, so I am reproducing the 20-year chart below.

*

I cannot see how anyone can form an opinion on the direction of inflation and interest rates since inflation bottomed out at 3.0% in June of 2023. That doesn’t stop market commentators from claiming that they can though. During the last year, inflation has been contained within a narrow band between 3.0% and 3.7%.

There is no trend yet, even though the narrative keeps changing. Following absurd exuberance over the prospects for multiple rate cuts, market watchers had become fearful that the Fed would raise rates instead. That is less likely now that inflation (excluding food and energy) rose 0.3% in April versus 0.4% during the previous three months. As it stands, my best take is that the Fed will not raise rates based on current data. A further reduction in the monthly inflationary increase would open the possibility of a summer rate cut. Giant cuts seem unlikely since a reigniting of inflation would be a serious setback for the economy. For now, our allocation remains unchanged.


* https://www.bls.gov/charts/consumer-price-index/consumer-price-index-by-category-line-chart.htm