Taming Inflation

    | September 12, 2022

    Telemus Weekly Market Review September 5th - September 9th, 2022

    This coming week, the Bureau of Labor Statistics will report the Consumer Price Index (CPI) for the month of August. The monthly CPI release used to be an economic indicator that was often overlooked, but as now become a focal point. Regardless of what this week’s report shows, it is important for investors to recognize that there is a long way to go before we can claim victory that the current inflationary environment has subsided.

    The Federal Reserve has stated they are targeting inflation to average 2% on an annual basis. Over the past year, inflation has risen 8.5%; well ahead of this target. Its also not just important for the headline CPI data to ease, but for core CPI, which removes more volatility food and energy categories, to also show persistent declines. Mathematically to get inflation toward a 2% average, we need to see monthly CPI readings persistently around 0.2%. This is a far cry from where we have been. Even in July when CPI was flat due to a meaningful decline in energy prices, core CPI still rose 0.3%.

    Our expectation is that inflationary readings are going to remain volatile for some time. Given the impact that Russia’s invasion of Ukraine has had on commodity markets, notably energy, it’s likely that we continue to see dramatic moves in oil and natural gas prices. In addition, prices on used cars, airfares and transportation have moved around considerably. We also believe that shelter costs will remain an inflationary pressure for another year or two. Apartment rents are up double digits over the past year and while rent increases seem to be peaking, they remain elevated relative to long-term trends. Given how the Bureau of Labor Statistics accounts for shelter costs, its likely that rent increases will gradually flow through the data over time. Given all of this, we expect there will be months where CPI readings will appear rather low and others where they will appear high. It’s the trend that matters, and a persistent downward trend is what the Fed seems to be focusing on given recent comments out of Fed governors.

    The Federal Reserve Bank of Cleveland has developed its Inflation Nowcasting tool that attempts to forecast the coming month’s inflation reading. As of September 9th, this tool is forecasting a muted 0.1% increase in CPI for the month of August, but a 0.5% increase in core CPI. In our view, regardless of what data is released, we don’t believe its appropriate to assume inflation challenges have been solved. We are pleased to see the recent progress in easing the monthly CPI cadence, but the economy remains far from having a consistent and persistent trend where inflation appears to be anywhere near the Fed’s annual inflation target of 2%.



    All opinions expressed in this article are for general informational purposes and constitute the judgment of the author(s) as of the date of the report. These opinions are subject to change without notice and are not intended to provide specific advice or recommendations for any individual or on any specific security. The material has been gathered from sources believed to be reliable, however Telemus Capital cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. Investment decisions should always be made based on the client's specific financial needs, goals and objectives, time horizon and risk tolerance. Current and future portfolio holdings are subject to risk. Risks may include interest-rate risk, market risk, inflation risk, deflation risk, currency risk, reinvestment risk, business risk, liquidity risk, financial risk, and cybersecurity risk. These risks are more fully described in Telemus Capital's Firm Brochure (Part 2A of Form ADV), which is available upon request. Telemus Capital does not guarantee the results of any investments. Investment, insurance and annuity products are not FDIC insured, are not bank guaranteed, and may lose value. Any reference to an index is included for illustrative purposes only, as an index is not a security in which an investment can be made. Indices are unmanaged vehicles that serve as market indicators and do not account for the deduction of management fees and/or transaction costs generally associated with investable products.

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    Matt Dmytryszyn

    Matt joined the Telemus team in 2018. As Chief Investment Officer, he leads the firms the investment process and research effort. Matt has experience as an equity analyst and portfolio manager and has advised corporate pension plans on their manager selection. He’s been quoted in Money Magazine and Barron’s.

    Matt Dmytryszyn mdmytryszyn@telemus.com
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