US Inflation Rises Slightly: Does It Even Matter?

Next up: Does inflation rising ever so slightly matter?

Yes, it does as we cover below. But the key question for financial markets and stocks is whether inflation is climbing because of economic growth or some other exogenous shock.

Now, it is inarguable that there are various other counter-arguments to any panic around this week's CPI. A brief list might include:

  • One month's reports don't make a trend.

  • The Fed doesn't even track CPI and its preferred measure for inflation, the PCE, still suggests lower numbers going forward.

  • As we have argued before, rents lag and will still likely come down in months to come.

  • Finally, January is often both a volatile and high inflation print because so many new contracts are structured to begin at this time.

All of the above are very true.

But the most important point might be simply that the big worry for investors is stagflation and that scenario is simply looking less and less likely at the present time.

Stagflation is the dreaded experience of inflation being high while economic growth is weak.

You can throw a lot of charges at the US economy right now and in an election year boy will people try (!) but It is simply very tough to make a case for stagflation any time soon.

Instead, the pressures are all the other way.

The US economy, of course, is still strong and expanding. As the January employment report demonstrated, this includes jobs which is the very antithesis of stagflation. Meanwhile the cost of goods globally continues to fall. Despite war in the Middle East, despite election uncertainty, despite a US Presidential candidate threatening the constitutional order, financial markets are far more concerned about a recession than they are about (slightly) more inflation.

The 2024 US election has its risks for investors - more than usual perhaps! - but stagflation is unlikely to be one of them.

After all, can lay many charges at the door of front runner and former Donald J. Trump including the fact that he just might end the American experiment with constitutional democracy. He certainly talks as if he plans to do so but his one saving grace might be that he is totally disinterested in stagflation or an anti-growth mindset of any type.

As he said himself: "we are going to win so much, you're going to get tired of winning."

Trump-as-President is still true to his past (and present?) as a classic real estate developer. As a general rule, real estate developers are super keen on low interest rates / high growth. They want a go-go economy that may eventually ends in an almighty crash but until then is one hell of a party. THAT is the preferred Trump economy and also suggests that more inflation could be very likely. Regardless of what actually occurs, at least right now, these are considered to be the risks.

All this to say that the stagflation scenario would be very unlikely early on in a second Trump Presidency.

Longer term, our big fear is simply that if inflation stays around 3-4% then that puts pressure elsewhere. This will make it hard for the Federal Reserve to cut interest rates as much as investors keep hoping. It will also mean an almighty struggle could occur between American central bankers on the one hand and American politicians - of either major party - on the other.

So, the takeaway is:

  • Interest rate cuts will be even less likely now. What was expected in March is now June and, in our view, likely to be further still.

  • Watch next month's CPI and also the Federal Reserve's favored inflation measure, the PCE which is published on February 29th.

  • The dirty secret is slightly higher inflation can actually be good for a lot of US stocks and also a lot of US companies. The key word there is "slightly."

  • Lastly, what about rate hikes? The big lesson from this week is they are not an impossibility this year. THAT would be a shock, if it becomes more likely.

One of the lessons from this week is at least, stay open to the idea that rate hikes could happen. It might be a very low probability today but one that could mushroom in the months to come.

Is the slim but real risk of further interest rate increases the only reason this report matters?


The most significant outcome from this week's inflation report is hinted at in that final point. The biggest risk from the bump in CPI might be political rather than economic.

Three years ago we began this newsletter very concerned that the casual and foolish approach to rising inflation by both the US government and many experts was deeply irresponsible. At the time we worried that this was both politically motivated and unserious and would sow long term problems.

Well, here we are. Voters hate inflation and the risks are that despite the strong economy, they focus on inflation, past and present because they have had a powerful lesson in the damaging effects it can have on their lives, their savings and their work.

Ronald Reagan knew it. It is just sad that the current generation of politicians don't. What is especially surprising is some of them are old enough to remember the inflation of the 70s and 80s. President Biden was already a Senator in 1972.....

This week's report should therefore worry many. Suddenly next month's report has risen in significance.

More positively, US inflation isn't the only thing rising.


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