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Decade High In This Inflation Measure

CAMS Weekly View from the Corner – Week ending 8/10/2018

August 13, 2018

If the citizenry experiences continued wage and income growth rates while the price of goods and services put in similar growth rates does that leave the everyday household much improved?

We have intermittently looked in on the inflation front for this very reason.  Importantly, the above general backdrop is a storyline the everyday household has experienced in recent decades not just recent years.

As a case in point, a not-so-fun historical fact is that real wages – that is wages after inflation is accounted for – peaked in the early 1970’s.  With this, we do have a multi-decade on-going story as an economic backdrop for households generally.

Various inflation measures were updated this past week with one in particular catching our attention.


The above is known as a “core” inflation measure whereby the Consumer Price Index is identified with the price of food and energy taken out.

This is not to minimize the importance and cost of said components to the everyday household but rather these two components are typically much more volatile in their price movements than other areas.

With this, the idea of a core rate, which typically moves more predictably, is looked at as well.  If the core rate is trending notably this speaks to a developing inflation theme rather than a blip.  Said developing theme is certainly what we have unfolding at this time.

The latest level of just over 2.3% for this core rate is a decade high.  Admittedly, the 2.3% is registering this high by the slimmest of margins.  Regardless, the trend is what is important and we certainly do have a trend to point to here in 2018.

With this inflation backdrop continuing the on-going expectation of another Federal Reserve interest rate hike yet in 2018 remains in place.

I wish you well…

Ken Reinhart

Director, Market Research & Portfolio Analysis

Portfolio Manager, CAMS Spectrum Portfolio

Footnote:

H&UP’s is a quick summation of a rating system for SPX9 (abbreviation encompassing 9 Sectors of the S&P 500 with 107 sub-groups within those 9 sectors) that quickly references the percentage that is deemed healthy and higher (H&UP).  This comes from the proprietary “V-NN” ranking system that is composed of 4 ratings which are “V-H-N-or NN”.  A “V” or an “H” is a positive or constructive rank for said sector or sub-group within the sectors.

This commentary is presented only to provide perspectives on investment strategies and opportunities. The material contains opinions of the author, which are subject to markets change without notice. Statements concerning financial market trends are based on current market conditions which fluctuate. References to specific securities and issuers are for descriptive purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. There is no guarantee that any investment strategy will work under all market conditions. Each investor should evaluate their ability to invest for the long-term, especially during periods of downturn in the market. PERFORMANCE IS NOT GUARANTEED AND LOSSES CAN OCCUR WITH ANY INVESTMENT STRATEGY.

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