The Important Details of This Week’s Inflation Reports

Last week, we were given a reprieve from major economic data; the fourth-quarter earnings season was nearly complete, and there were only a few economic reports on deck.

This week, we were treated to three very important economic reports: the Consumer Price Index (CPI) and Producer Price Index (PPI) readings for February and the February U.S. retail sales report.

All were closely analyzed by Wall Street, as the numbers could impact the Federal Reserve’s interest-rate decision at next week’s March Federal Open Market Committee (FOMC) meeting.

So, in today’s Market 360, we’re going to dive into the details of each. I’ll share what I expect from the Fed on Wednesday, and then I’ll explain what could happen when the Fed does finally cut key interest rates.

Let’s get started.

Consumer Price Index

The Labor Department announced on Tuesday that the CPI rose 0.4% in February and 3.2% in the past 12 months. The core CPI, which excludes food and energy, rose 0.4% in February and 3.8% in the past 12 months.

Looking a little closer at the numbers…

Food prices were unchanged.
Energy prices rose 2.3% (gas price rose 3.6%).
Owners’ Equivalent Rent (ORE), or shelter costs, rose 0.4%, down from 0.6% in January.

Gasoline and shelter costs accounted for 60% of the February CPI increase. Overall, CPI and core CPI were higher than economists’ consensus estimates, but there were no big surprises.

Producer Price Index

The Labor Department revealed on Thursday that the PPI increased 0.6% in February, which was double economists’ estimates for a 0.3% rise. PPI is now up 1.6% in the past 12 months. Core PPI, which excludes food, energy and trade margins, was up 0.4% in February – double economists’ expectations for a 0.2% rise – and up 2.8% in the past 12 months.

Breaking the PPI down further…

Wholesale food and energy prices rose 1% and 4.4% respectively.
Wholesale service costs rose 0.3%.
Wholesale goods prices surged 1.2%.

This was a disastrous report and shows that inflation is not cooling at the wholesale level.

U.S. February Retail Sales Report

The Commerce Department also published the U.S. retail sales report on Thursday. Retail sales rose 0.4%. Excluding transportation, retail sales rose 0.3%, which was below economists’ consensus expectations.

Digging a little deeper into the numbers…

Vehicle sales were up 1.6%.
Electronics and appliance sales rose 1.5%.
Gas station sales increased 0.9%, due to higher prices at the pump.

Overall, this retail sales report is indicative of lackluster GDP growth. In the wake of the retail sales report, the Atlanta Fed lowered its first-quarter GDP growth estimate to a 2.3% annual pace, down from previous estimates for 2.5%.

A Big Shift in the Market Is Coming…

Now, the Fed has a 2% inflation target. And based on the latest data, inflation isn’t there yet. So, I do not expect the Fed to cut key interest rates at next week’s FOMC meeting. In fact, I don’t think they’ll lower key rates until June at the earliest. So, expect the Fed to leave interest rates unchanged at 5.25% – 5.50% on Wednesday.

But when the Fed does finally cut key rates, expect a big shift in the market…

That’s because there’s $8.8 trillion in cash sitting on the sidelines – a record high.

The reality is that, since 2020, we’ve been seeing an interesting trend develop… With the stock market being so volatile, a lot of investors started moving their money to cash. In 2023, this trend accelerated aggressively. We witnessed a staggering $1 trillion being pulled out of the stock market and tucked away into money markets in 2023 alone.

So, when the Fed cuts rates, I predict the $8.8 trillion in cash will flood back into the stock market. The reality is investors will stand to make more money in stocks than in their savings accounts, money markets or Treasury bonds.

But the money isn’t going to pour into just any stock…

A lot of it is going to flood into select artificial intelligence stocks… and my system found five stocks that should see an immense amount of money flow once the Fed opens the floodgates.

I went into detail about the impending flood during my Emergency Cash Bubble Briefing on Wednesday. I also discussed…

What history tells us about how rate cuts impact the stock market.
The stocks primed to benefit when the cash bubble pops.
And I give away one of my top AI picks – absolutely free.

Click here to watch a replay of my Emergency Cash Bubble Briefing now.

You’ll also learn how you can become a member of Breakthrough Stocks, where you’ll get one to two new early-stage investment opportunities with massive upside potential nearly every month. And if you sign up today, you’ll get access to a handful of my brand-new AI-focused special reports.

(Already a Breakthrough Stocks member? Click here to log in to the members-only website now.)

Sincerely,

Louis Navellier