Kass: Stop the Nonsense That There Is No Inflation; 8 Bad Things for Stocks

The Fed shouldn't breathe easy just yet.

Can we please stop with this false narrative on inflation?

 

The January CPI saw no change at the headline level and a 0.2% core rate of increase, which brings the year-over-year increases to 1.6% and 2.2%, respectively. This was in line with expectations. Another decline in oil prices kept a lid on the headline figure. Food prices were up 0.2% month over month and 1.6% year over year.

In what continues to be the case, services inflation ex-energy remains persistent as it grew by 0.2% (month over month) and 2.8% (year over year).

Please stop telling us there is no inflation.

Rents and medical care continue to mostly drive this. Rent of Primary Residence was higher by 0.3% (month over month) and 3.4% (year over year). OER, the understated measure of housing inflation, was also up 0.3% and 3.2%, respectively. A 2.4% year-over-year increase in medical care services was partially offset by a decline in medical care commodities and drugs, both prescription and nonprescription. Overall, medical care costs rose 0.2% (month over month) and 1.9% (year over year).

Other important price increases for things that are important to the average family, tuition and childcare costs, rose 2.8%. College tuition and fees were higher by 2.9%, elementary and high school tuition was up by 4.4%. For those sports fans (my Real Money Pro pals), ticket prices jumped by 7% year over year. For those that drive, insurance prices rose 3.4%. In direct response to tariffs, laundry equipment prices were up 7.2% year over year. On the other hand, if you fly a lot airline fares fell by 2.8% year over year.

Of note in January, we finally saw an increase in goods prices ex-food and fuel. They jumped by 0.4% month over month over month and actually brings the year-over-year gain to 0.3%. Higher prices for apparel was the main reason as they jumped by 1.1%. New and used car prices were up 0.2% and 0.1% month over month, respectively. Tariffs and high transportation costs are lending support to higher core goods prices.

Bottom line, the core rate of inflation is now up 0.2% a month for five straight months. The Fed shouldn't breathe easy just yet. If you watch the PCE instead, remember the biggest component, medical care, is mostly price fixed.

Inflation expectations in the TIPS market jumped 2 basis points immediately after the in line print. The 10-yr breakeven is at 1.86%, one basis point from a two-month high.

Is It Just Me?

Is it just me or is the news flow awful for stocks?

1. Talk of limiting buybacks or taxing them.
2. The move toward higher taxes in general (I favor a flat tax no deductions).
3. Not news but the level of stock averages.
4. Regulation talk here (new attorney general) and abroad of big tech.
5. China and everything it stands for, forgetting trade.
6. The rest of the world's conflicts that seem in every hemisphere.
7. A weakening domestic economy (see Thursday morning's big miss on retail sales).
8. The continuing loss of momentum in global economic growth.

I could go on but feel like the news is awful for business and corporate profits (and frankly the politics are awful for the world).

(This commentary originally appeared on Real Money Pro on Feb 13 and Feb. 14, respectively. Click here to learn about this dynamic market information service for active traders and to receive Doug Kass's Daily Diary and columns from Paul Price, Bret Jensen and others.)

 

At the time of publication, Doug Kass was Short SPY, QQQ.