Good News and Bad News
Last week we received one of the final inflation reports for 2024 in the form of the December Consumer Price Index (CPI) report. The report had both good news and bad news for consumers and traders.
The bad news for egg lovers is that egg prices rose by 36.8% in 2024. Other products or services with the largest 2024 price increases include frozen noncarbonated juices and drinks (+12.5%), other condiments (+12.4%), pet services (+11.5%), and motor vehicle insurance (+11.3%).
The good news for consumers is that some items got cheaper in 2024. Other motor fuels (-13.5%), fuel oil (-13.1%), smartphones (-11.7%), and telephone hardware, calculators, and other consumer information items (-9.7%) saw price reductions over the course of the year.
The bad news is that total prices in December climbed by .4% on a seasonally-adjusted basis. This is a step higher than November’s .3% inflation increase, and clearly a step in the wrong direction from the Federal Reserve’s viewpoint.
It is easy to annualize these figures by multiplying by 12. If we stay on this course, it is possible overall inflation could be 3.6% to 4.8% over the next twelve months. That would not be good.
The good news is that most of December’s inflation bump came from two sources – energy (+4.4%) and food (+.3%). While we use a lot of energy and consume a lot of food in our daily lives, the prices of energy and food are fairly volatile and have more to do with geopolitics and weather than monetary policy.
If we exclude food and energy from December’s inflation calculation, we arrive at a much more palatable .2% increase in the December CPI – bringing year-over year inflation (excluding food and energy) to 3.2%. This is closer to the Federal Reserve’s stated 2% inflation target, and actually less than economists were projecting for December.
We have now arrived at the interesting point of the economic cycle where traders have a higher sensitivity to any information that could sway the Federal Reserve to accelerate or decelerate future target interest rate reductions.
Traders reacted favorably to the December CPI report last week (good news was good news). However, at this stage they could also react negatively to hints that the economy is stronger than previously assumed (good news can be interpreted as bad news).
Whether it is good news that is bad news, bad news that is good news, good news that is good news, or bad news that is bad news, the fact remains all of this noise is just the news of this moment.
While it is entirely too easy in today’s information overload society to let today’s headlines drive impulsive investment decisions, our recommendation is always to place today’s news in the context of your decades-long financial plan.
The long-term benefits of persistently and emotionlessly compounding each day’s good and bad news only fall to those who are willing to ignore each day’s good and bad news.
Quote of the week: Morgan Housel: “Good news comes from compounding, which always takes time, but bad news comes from a loss in confidence or a catastrophic error that can occur in a blink of the eye.”
Securities offered through LPL Financial. Member FINRA/SIPC. Investment advice offered through IAG Wealth Partners, LLC, (IAG) a registered investment advisor and separate entity from LPL Financial.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.
Any opinions are those of IAG and not necessarily those of LPL Financial. Expressions of opinion are as of this date and are subject to change without notice. This information is not intended as a solicitation or an offer to buy or sell any security referred to herein. No strategy assures success or protects against loss. Investing involves risk including loss of principal.
The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
Photo Credit: 1468272565
ART: 685343-1
