All told, the Atlanta Federal Reserve tracks nine inflation indices that all use slightly different methodologies to measure \u201cunderlying\u201d inflation. As you can see below, the results often vary widely, painting significantly different inflation pictures depending on which metric is being used:<\/p>\n\n\n\n In any given year, as an investor determines their outlook for inflation, interest rates, and corporate earnings, using CPI and Core CPI is likely satisfactory for the inflation piece of the analysis. But I\u2019m not sure that works for 2023.<\/p>\n\n\n\n This year, I think investors should focus on what the Federal Reserve is focused on. Minutes from the December Fed meeting \u2013 in addition to numerous comments and press conferences from Chairman Jerome Powell \u2013 say the focus should be core services inflation<\/em> excluding housing<\/em>. In other words, while analysts and experts are breaking down changes to the prices of eggs, gas, and refrigerators each month, investors can likely look past these commentaries and data points. At this stage, \u201cgoods inflation\u201d is not bearing nearly as much weight on the Fed\u2019s thinking as many investors and market watchers may think.<\/p>\n\n\n\n Last month, for instance, CPI fell to 6.5% in December from 7.1% in November and a peak of 9.1% in June, and overall consumer prices also fell -0.1% in December from November \u2013 the first monthly drop since May 2020. The Fed was largely unmoved. That\u2019s because core services inflation (blue line on the chart below) remains elevated even as broad-based measures of inflation are in a downward trend.<\/p>\n\n\n\n Services Inflation Excluding Housing (Blue Line) Remains Elevated<\/strong><\/p>\n\n\n\n Services inflation is driven in large part by a tight labor market\u2019s effect on wages. That means investors\u2019 approach to inflation this year should involve monitoring average hourly wage data, as well as keeping an eye on the Bureau of Labor Statistic\u2019s employment cost index release. These are the inflation metrics the Fed is watching most closely to determine the path of interest rates, so it makes sense that investors should be honing-in on this aspect of inflation, too.<\/p>\n\n\n\n Bottom Line for Investors<\/strong><\/p>\n\n\n\n December 2022 wage data was encouraging. Year-over-year, wages rose by 4.6%, a marked improvement from a 5.6% peak in March but still not compatible with the overarching goal of 2% core inflation. Looking at just Q4 2022, wages grew at a 4.1% annual rate, which may be confirmation that a softening trend is firmly underway.<\/p>\n\n\n\n Later in January, the Labor Department will release its quarterly employment-cost index, which is not likely to receive much press but that investors should keep a close eye on. The Fed sees this index as the most reliable gauge of worker pay, so it is likely to factor heavily into their plans for interest rate policy. Better data on wages could offer a clearer understanding of where interest rates will peak, which many would argue is what the stock market needs for a sustained rally.<\/p>\n","protected":false},"excerpt":{"rendered":" There are a bunch of indexes to track inflation\u2014and they show varying figures for current inflation. Mitch helps investors sort it all out. <\/p>\n","protected":false},"author":4,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[181,1],"tags":[],"class_list":["post-9379","post","type-post","status-publish","format-standard","hentry","category-financial-professionals","category-mitch-on-the-markets"],"acf":[],"_links":{"self":[{"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/posts\/9379","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/comments?post=9379"}],"version-history":[{"count":2,"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/posts\/9379\/revisions"}],"predecessor-version":[{"id":9382,"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/posts\/9379\/revisions\/9382"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/media?parent=9379"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/categories?post=9379"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/tags?post=9379"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}Measure of Underlying Inflation<\/strong><\/td> 12-Month Growth Rate (December 2022)<\/strong><\/td><\/tr> Core CPI<\/td> 5.7%<\/td><\/tr> FRB Cleveland Median CPI<\/td> 6.9%<\/td><\/tr> FRB Cleveland 16% Trimmed-Mean CPI<\/td> 6.5%<\/td><\/tr> Atlanta Fed Sticky CPI<\/td> 6.7%<\/td><\/tr> Core PCE<\/td> 4.7%<\/td><\/tr> Market-Based Core PCE<\/td> 4.9%<\/td><\/tr> FRB Dallas Trimmed-Mean PCE<\/td> 4.6%<\/td><\/tr> FRB San Francisco Cyclical Core PCE Inflation<\/td> 7.5%<\/td><\/tr> Cyclically Sensitive Inflation (Stock and Watson (2019))<\/td> 6.7%<\/td><\/tr><\/tbody><\/table> ![\"\"](\"https:\/\/zacksim.com\/financial-professionals-insights\/wp-content\/uploads\/2023\/01\/pic11222023-1024x395.png\")