Markets Turn Attention to Inflation Reports

January 8, 2018

Markets Turn Attention to Inflation Reports Photo

Two U.S. inflation reports being released on Thursday and Friday will highlight the week ahead. The release of the Producer Price Index and Consumer Price Index will show if inflationary pressures have started to build, or if inflation remains subdued.

One of the surprises from 2017 was that economic growth and a tightening labor market didn’t lead to wage gains or rising inflation pressures. The consensus expectation is for inflation to remain low, allowing the Federal Reserve (Fed) to raise interest rates slowly. I do think this week’s reports will be in line with estimates, with the yearly increase in wholesale prices being 3.0% and consumer prices 2.1%. I also believe 2018 will be different in that inflation pressures will begin to creep into the discussion as the year goes on, leading to significant market reaction about how the Fed should proceed.

I continue to like Treasury Inflation Protected Securities and a defensive posture on interest rate risk overall.

Tags: Monday Morning O'Malley | Inflation | Federal Reserve | Treasury Inflation Protected Securities (TIPS) | Consumer Price Index | Producer Price Index

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