Houston's Rate Sheet

CPI shows moderate inflation

Many of the news articles today stated that the Consumer Price Index (CPI), a key indicator of inflation at the retail level, dropped for the month of December. This is misleading considering most of the decrease in prices was due to falling oil prices. As we all know oil prices have again moved up quite a bit in the past couple weeks, due to fears over Iran the world’s 3rd largest oil producer. The core CPI (CPI minus food and oil) which is typically a better indicator of inflation went up to along market expectations to .02%. This reveals moderate inflation and some pundits believe could be accelerating. If this is the sentiment felt by the Fed, we'll probably see a rate hike at the end of the month.

On the bond market front, Treasury yields took an initial dive, but returned back to Tuesday levels. The 10-year Treasury is at 4.34 percent and the 2-year Treasury is at 4.33 creating an inverted yield curve. If you believe that history is an indicator of the future, that ain't good. Five out of the last six inverted yield curves were followed by an economic recession. Although many experts believe that this particular inverted yield curve will not produce those results. Let's hope they're right and rates stay relatively low throughout the year.

posted by Vincent Biondillo @ 5:18 PM