Does The CPI (Consumer Price Index) Report Affect The Stock Market | News or Noise

 

On Wednesday, August 10th, the government released its consumer price index, also known as CPI. It rose 8.5% in July 2021, which was below expectations, mostly on slumping energy prices.

Excluding food and energy prices, core CPI rose 5.9% annually and 0.3% monthly, compared with estimates of 6.1% and 0.5%. The report was good news for workers, who saw a 0.5% monthly increase in real wages. Take a look at the chart from CNBC on Year to Year change in the CPI. It’s high, and it looks like it is starting to decline.

I’m Chris Perras, Chief Investment Officer with Oak Harvest Financial Group. And This is our investment team’s mid-week release when we examine a news item, headline, or story making the rounds from publicly available sources and ask, “Is it News or Noise?” for your money. This week we take on the recent government inflation data.

Is this news? Yes, it is. However, as we have stressed for the last four years, government data is late, almost always revised, and of little long-term value or help for managing your money.

Many on TV have been surprised by the markets moving up in front of even the hint of slowing or lower inflation with government statistics. We haven’t been. We’ve been talking about it for weeks because we are watching real-time tradeable data that we have found leads this government data, such as real-time interest rates. I will preach my belief on this matter once again. Waiting or trading on government data will do you virtually no good except make you late to the big moves that better real-time traded data most often sees in advance.

Milton Friedman famously said, “Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.” Take a look at the chart of our money supply as measured by M2 versus inflation as measured by CPI.
One can clearly see there is a strong correlation, albeit with a lag over the last 25 years, between money supply growth and domestic CPI. Money supply growth peaked over a year ago and has collapsed. Based on this chart, we expect the CPI to follow this pattern lower in the 4th quarter of 2022 and the first half of 2023. Which, of course, would be…Great for stock market valuations.

At Oak harvest, we think our clients are best served by us helping them plan for their future needs, instead of focusing on the past. The future is always uncertain and that’s why our advisors and retirement planning teams, plan for your retirement needs first, and your greed’s second.

Give us a call to speak to an advisor and let us help you craft a financial plan that helps you meet your retirement goals. Call us here at (877) 896-0040, and schedule an advisor consultation. We are here to help you on your financial journey into and through your retirement years.
I’m Chris Perras and from everyone here at Oak Harvest Have a blessed week.