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Data Suggested Wage Growth is Accelerating.

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%.

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Ken Engelke

Chief Economic Strategist Managing Director

The views expressed herein are those of Kent Engelke and do not necessarily reflect those of Capitol Securities Management. Any opinions expressed are statements of judgment on this date and are subject to certain risks and uncertainties which could cause actual results to differ materially from those currently anticipated or projected. Any future dividends, interest, yields and event dates listed may be subject to change. An investor cannot invest in an index, and its returns are not indicative of the performance of any specific investment. Past performance is not indicative of future results. This material is being provided for informational purposes only. Any information should not be deemed a recommendation to buy, hold or sell any security. Certain information has been obtained from third-party sources we consider reliable, but we do not guarantee that such information is accurate or complete. This report is not a complete description of the securities, markets, or developments referred to in this material and does not include all available data necessary for making an investment decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. If you would like to unsubscribe from this e-mail distribution, please reply to this e-mail and indicate that you wish to unsubscribe in your response.