Last week, the Michigan Wolverines pounced on the Washington Huskies in the NCAA Football Championship. Their victory is analogous to how the shelter component dominated the warmer-than-expected inflation data in the December Consumer Price Index (CPI). The index component for shelter continued its rise, contributing to over half of the overall CPI increase.
The owners’ equivalent rent of residences (OER) survey, which accounts for 75% of the shelter index, could overstate current rent inflation and is susceptible to consumer biases. If rental rates have stabilized and are not reflected in the survey, actual inflation could be closer to the Federal Reserve’s target policy inflation rate of 2%. To support this theory, the Producer Price Index (PPI), a forward-looking inflation gauge, decreased in December. The Fed might see inflation nearing its target soon and could lower rates to encourage economic growth rather than slow it down.
This week, the fourth-quarter earnings reports for many banks and insurance companies will be in the spotlight. Their earnings calls are expected to provide insights into the health of US consumers and small businesses. Economic reports will further highlight the US consumer. Wednesday’s Retail Sales Report and Friday’s data on existing home sales will be important indicators of consumers’ spending ability. Friday’s consumer sentiment report measures their willingness to invest and spend money.
Have a great week, and thank you for reading.
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