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Inflation Higher,
But Not Causing a Stir

Learning Opportunities

This week’s inflation reports showed a spike in price pressures from a year ago, but not enough to cause panic in the financial markets. The 2.4 percent year-over-year increase in the consumer price index was anticipated, as the impact of the cellphone contract pricing wars from early 2017 rolled off the annualized calculation. Cellphone prices fell 9.7 percent in February 2017, more than normal, subduing the index until now. Consumer prices fell 0.1 percent in March, while the core index rose 0.2 percent. The core index was held down by lower energy and gasoline prices. Retail gasoline prices increased 0.2 percent, much lower than the 6.0 percent five-year average for March.

The producer price index was higher than expected for both monthly and year-over-year gauges. The 0.3 percent rise in March came mainly from a larger than normal increase in cable and satellite subscriber services, up 3.6 percent. This was the biggest gain in over nine years. The increases in wholesale prices suggests cost pressures in the production pipeline will continue and could get worse if the proposed tariffs take effect.

Other Key Indicators this Week:

Fed Minutes – The minutes from the March FOMC meeting revealed the Federal Reserve is pleased with the direction the economy is moving and believes the outlook beyond the first quarter has strengthened. While the minutes set off a brief panic about more aggressive rate moves, the concern quieted on learning the minutes were from three weeks ago. The "slightly steeper" path of rate moves was being compared to last year, not last month. The minutes also noted that many participants anticipate inflation will rise to, and remain at, the 2.0 percent inflation objective in coming months.

JOLTS – The number of job openings in February fell by 176,000 to 6.052 million. Coupled with the addition of 326,000 jobs as reported by the Labor Department for that month, the two reports suggest employers are having success in filling positions. Construction and food service jobs reflected the most declines, while vacancies increased in financial services and health care.

Consumer Sentiment – The latest survey of consumer confidence fell from a 14-year high mark in April. According to the University of Michigan Consumer Sentiment Survey, more than 25 percent of consumers cited the proposed trade tariffs as causing some uneasiness. Other concerns included rising borrowing rates and slower economic growth. Consumers remain confident about income growth.

Strategically for Credit Unions:

The yield curve spent most of the first two weeks under 50 basis points. The market remains unconvinced about either rising inflation or extra strong economic growth. The geo-political issues involving trade tariffs and potential military action in the Middle East are enough to the keep the 10-year Treasury note below 2.90 percent. Fed funds futures predict an 88 percent chance for another rate increase at the June FOMC meeting. If that happens and the 10-year Treasury remains stuck under 2.90 percent, the yield curve could fall under 40 basis points.

Sarina Freedland – Senior Investment Officer

Although this information has been obtained from sources we believe to be reliable, we do not guarantee its accuracy, and it may be incomplete or condensed. This is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. All herein listed securities are subject to availability and change in price. Past performance is not indicative of future results. Changes in any assumption may have a material effect on projected results.