Equity markets were again relatively quiet. There was some discussion regarding January’s CPI data. A plunge in January’s energy costs pulled the CPI down by 0.7%, the biggest decline since 2008 but ex food and energy, costs rose by 0.2%. The data confirmed the Fed’s view that inflation will eventually reach its 2.0% goal.
Cheaper fuel is permitting households to spend additional money in other areas of the economy, supporting both demand and prices. Orders for durable goods also rose more than expected, perhaps the result of declining energy prices.
Overall consumer prices decreased by 0.1% in the 12 months ended January, the first year to year drop since October 2009. Core prices however rose by 1.6% from January 2014, the same as in the prior month.
Other data suggested wage growth is accelerating. The Labor Department announced hourly earnings adjusted for inflation jumped 1.2% in January from the prior month, the most since December 2008. Real wages climbed 2.4% over the past 12 months, the biggest advanced since October 2009.
Generally speaking I believe this data should quell deflationary talk. Many times I have commented the dramatic decline in oil is a direct stimulus as the extra funds are not transferred from the government to the economy but are directly injected to both consumers and businesses alike, the most efficient use of money.
Commenting about oil, oil fell because of supply concerns. I believe yesterday’s decline is ignoring the possibility that according to Reuters Russia may suspend gas shipments to the Ukraine perhaps as early as Sunday. The Kremlin also inferred it may curtail gas shipments to the former Russian satellites and now NATO members, Latvia, Lithuania and Estonia if the West increases sanctions.
Natural gas rose in Europe on this news.
Returning back to the yesterday’s market activity, Treasuries were off about a point for as written above, the CPI supports the Fed’s “transitory” inflationary view.
Last night the foreign markets were mixed. London was down 0.15%, Paris up 0.25% and Frankfurt up 0.08%. Japan was up 0.06% and Hang Sang down 0.32%.
The Dow should open quietly lower. The 10-year is off 2/32 to yield 2.04%.