This morning, the Bureau of Labor Statistics reported that the January CPI index increased 0.5%, slightly above forecasts. Econoday had this to say on the report:
“Core inflation, excluding food and energy, was up 0.4 percent in January, the same as in December, and 5.6 percent year-over-year, above estimates of 0.3 percent and 5.5 percent, respectively.
While the monthly acceleration in the headline inflation rate was a setback after slowdowns from 0.5 percent in October, 0.2 percent in November, and 0.1 percent in December, 12-month inflation rates actually decreased for both the headline and core indexes. At 6.4 percent, the 12-month rate is at its lowest level since October 2021, and at 5.6 percent, core inflation is the lowest since December 2021.
In January, a 0.7 percent increase in the shelter was the largest upward contributor to the monthly CPI gain, accounting for nearly half of the headline index advance. Food, which was up 0.5 percent, and energy, which rebounded 2.0 percent, also boosted monthly prices. Motor vehicle insurance, recreation, apparel, and household furnishings and operations also drove monthly inflation higher, while prices for used cars and trucks, medical care, and airline fares declined.”
CNBC reported this morning that the “Super Core” inflation rate of the CPI, excluding shelter, energy, and food, was now at only a 4.3% annualized rate.
The stock market opened slightly lower today and remained in a tight range as the inflation news was close to investors' projections and, more importantly, without any surprises.
As a result of solid evidence of slowing inflation, investors are not talking so much about a hard landing but now suggesting no landing at all. For airplanes, it is not possible to not land. However, an economy can slow and hover at new zero GDP growth and then take off again. The change in analyst views is primarily due to the strong labor market that appears to be absorbing employees into new jobs faster than they are being laid off. Despite news of over 70,000 employees being laid off by companies including Microsoft, Facebook, Google, and Ford, the unemployment rate actually dropped last month to 3.4%, its lowest level since 1969.
A second factor that is holding up the economy is consumer spending, which declined during the holidays and has now picked up in January. Consumers' budgets are improving due to declining energy and gas prices and affordable fixed housing costs for those that have secured 3% to 4% fixed mortgage rates these past several years.
So, it would appear the economy's landing zone is not at ground zero but slightly higher and may take off from there in 2024.