Market Commentary: Inflation Takes an Unexpected Turn

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Consumer Price data was released this morning by the U.S. Bureau of Labor Statistics, showing month-over-month changes in inflation after removing the impact of food and energy rose .4% versus expectations for a 0.3% increase. This was unchanged from January. On a year-over-year basis, CPI ex-Food and Energy rose 3.8% versus expectations for 3.7%. With investors putting their hopes on the Fed cutting rates this year, this hotter than expected inflation reading comes as a bit of a surprise. The all-in inflation reading came in right at expectations of 0.4%, but also was an increase of 0.1% versus last month. On a year-over-year basis, CPI rose 3.2%, which was 0.1% higher than consensus expectations for a 3.1% increase as well as being 0.1% higher than January.

 

We were concerned when the Price component of the ISM Service index rose in January to 64 from December’s 56.7 reading. Concerns were heightened last month when both CPI and PPI data (consumer prices and producer prices) came through higher than expected. While it isn’t time to panic, higher inflation than expected comes at a time when the markets have been priced for lower rates. To the extent rate cuts get pushed out, markets should be forced to rethink valuations.

Malcolm E. Polley, CFA®
Chief Market Strategist




Source: FactSet, US Bureau of Labor Statistics
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Disclosure: Investment advice offered through Stratos Investment Management, a registered investment advisor. The information contained in this market commentary reflects the opinions of Stratos Investment Management. These opinions do not reflect the views of others and are subject to change without notice. Content in this material is intended for general information purposes only and should not be construed as specific investment advice or recommendations for any individual. Please contact your advisor with any questions or for specific recommendations regarding your own circumstances. Investing involves risks including possible loss of principal.
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Malcolm Polley, CFA® - Chief Market Strategist

Malcom joined Stratos Investment Management in January of 2024, bringing over 30 years of industry experience. He acts as Chief Market Strategist and curates a range of market commentaries as well as facilitates in investment decision processes. Prior to joining Stratos, Malcolm led the effort to form Stewart Capital Advisors, LLC, an SEC registered investment advisory subsidiary of S&T Bank. He acted as President and Chief Investment Officer for 18 years. Malcolm began his career in 1987 on Black Monday; and he has held leadership positions with many financial services organizations including S&T Wealth Management, Marquette Trust Company, Marquette Advisory Services, and West Bank. He received a BBA in finance from Iowa State University. He holds the Chartered Financial Analyst® designation and is a member and past president of the CFA Society of Pittsburgh. Malcolm has served as adjunct faculty at the Eberly College of Business and Technology at the Indiana University of Pennsylvania. Malcolm often presents to client, community, and industry groups; and he has been a frequent guest on various financial and investment programs including Squawk Box, Squawk on the Street, Power Lunch, Closing Bell, Fox Business, Bloomberg TV and Bloomberg Radio. One of those appearances is quoted by Andrew Ross Sorkin in his bestselling book, Too Big to Fail.