Two weeks from now the Federal Reserve will be meeting again. Meanwhile the members of the Open Market Committee have been on a feeding frenzy. While mere mortals like us feed on regular food such as meat, carbs and dairy, the Fed feeds on data. And they have had plenty of data to feed on. Two weeks ago, we had the inflation reports showing that, while annual inflation is still subsiding, inflation has not gone away. This is why Chairman Powell expects the war on inflation to be a longer process than the markets would like.
As a matter of fact, we get to add a new word to describe inflation. Traditionally there are the consumer and producer price indices. For each of those is also provided a measure of core inflation, which excludes the volatile components of food and energy. Now we have “intrinsic” inflation. Basically, this is inflation which is persistent instead of transitory because it is ingrained into the core of our economic systems. For example, the cost of goods could fall, but if we still have a labor shortage, the cost of labor necessary to enjoy those goods could continue to rise.
Even more reason for the Fed to feed on the February jobs report – especially since we had such a surprise on the upside with January’s numbers. But there has been plenty of other food for thought on the way – including surprisingly high retail sales and consumer spending data for January. At this point it does not seem as if the consumer is slowing down, something that the Fed was counting on. The Fed will also have additional inflation reports to chew on a week before they meet. It is our hope that the February Consumer and Produce Price Indices are a bit tamer than January’s numbers.