Indiana Trust Wealth Management
Investment Advisory Services
by Clayton T. Bill, CFA
Vice President, Director of Investment Advisory Services

  • The US equity market, represented by the S&P 500 index, slipped 1% for the week ending February 10.
  • Monthly CPI inflation prints may be volatile as inflation trends lower in 2023.

All that seemingly matters to capital markets is inflation and the Federal Reserve’s response to it. January’s Consumer Price Index (CPI) inflation data will be released next week by the Bureau of Labor Statistics (BLS). It will be parsed ad nauseum by investors, economists, and the press.

Capital markets have been shifting toward a view consistent with dissipating inflation. Supportive of this outlook is that wage growth has rolled over and that other critical components in the BLS’s consumer basket measuring inflation, such as rents, are set to decelerate this year.

However, there may be a few bumps in the road ahead for CPI inflation. The January jobs report, released last Friday, reflected massive employment gains, blowing the doors off most economist predictions. A growing number of Americans are working, and they will be spending this year.

Some evidence of this is already appearing in the data. Wholesale used car prices – which had been in free-fall in 2022 – had an unexpectedly firm month in January, rising 2.5%. Mortgage applications have also picked up in 2023.  

Changes in the methodology used to measure CPI inflation will also make an impact in 2023, although to what extent is unclear. Per the BLS website, “Starting with January 2023 data, the BLS plans to update weights annually for the Consumer Price Index based on a single calendar year of data, using consumer expenditure data from 2021. This reflects a change from prior practice of updating weights biennially using two years of expenditure data.” These types of changes can add or subtract meaningfully to headline inflation.

Although it appears that inflation is softening and the trend is good, it may not slow in a straight line. There could be months of CPI heat with which markets will need to contend.

Next week’s January CPI print may or may not be one of those months - but any one data point, even one as important as CPI inflation, does not tell the full story.

Employment and wage growth have become as important as inflation because the Fed believes that wage growth is driving inflation in services. January appears to have been a very strong month for the US economy and for employment. The question is whether that portends more robust employment numbers in the coming months, which makes the next jobs report – the February report due out in early March – just as meaningful as next week’s CPI release.


IMPORTANT DISCLOSURES: All info contained herein is solely for general informational purposes. It does not take into account all the circumstances of each investor and is not to be construed as legal, accounting, investment, or other professional advice. The author(s) and publisher, accordingly, assume no liability whatsoever in connection with the use of this material or action taken in reliance thereon. All reasonable efforts have been made to ensure this material is correct at the time of publication.  Copyright Indiana Trust Wealth Management 2023.