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Investing Specialists

Inflation Pushes Higher, Endangering the Recovery

Barring a disaster, inflation should peak around midyear but stagnant wage growth means there isn't much relief for consumers in sight, says Morningstar’s Bob Johnson.

This month, the economics calendar aligned in a bad way with most of the major data releases coming this week, and many of those on Wednesday. We had to triage this week's reports and I will be focusing on the inflation, retail sales, and industrial production reports. Inflation took its expected turn for the worse with month-to-month inflation up 0.6% and 2.5% year over year. January could be the worst of the month-to-month news. Let's hope so; the month-to-month data annualized to over 7% inflation. The year-to-year data still has a couple of bad months ahead of it, with a chance of hitting 3% inflation in February. The core inflation rate is trending up, as is inflation excluding just gasoline prices, but not nearly as much as the headline number, and not alarmingly so. I still worry about the impact of even small inflation increases on the consumer.

Retail sales looked surprisingly good, at least until I matched the sales data with the Consumer Price Index report. Taking that extra step shows acceptable retail sales but not the barn-burner that many pundits have described. Combining low utility usage, OK inflation-adjusted retail sales, and poor auto sales in January, we would not be surprised if January consumption data, to be reported in March, could be down on an inflation-adjusted basis.