GRIMALDI & PARTNERS: US inflation rebounds to 5.4% in January

By Silvano Grimaldi, CEO Grimaldi & Partners

Zurich – Investors are wondering whether inflation will fall further. Will the economy soon pick up speed again? Are stocks or bonds preferable? What is the best way for me as an investor to position myself? Silvano Grimaldi, CEO of the independent asset management company Grimaldi & Partners AG, gives you the answers to these questions.

Inflation remains stubborn, but it is retreating in small increments
US inflation rose to 5.4% in January from 5.3% in December, according to the PCE index released on February 24th. This confirms the Federal Reserve's warnings that inflation is not yet under control and interest rates will continue to rise.

The benchmark PCE index, which the US Federal Reserve uses, showed US inflation rose to 5.4% over the year in January, up from 5.3% in December and 5.5% in November. Prices rose 0.6% in January, ahead of the expected 0.4% increase. The New York Stock Exchange reacted to the news with a sharp decline, with the Dow Jones index down 1.19% and the Nasdaq down 1.96%. Core inflation, which excludes food and energy prices, rose to 4.7% in a year. On the household side, income grew by 2% and spending by 1.8%, the largest increases in recent months. The CPI index, another measure of US inflation, edged down to +6.4% over the year in January compared to +6.5% in December. The Fed had warned that inflation is not over yet and interest rates will continue to rise.

The Fed is on alert
The US inflation rate rose to 5.4% on a yearly basis in January, beating analysts' expectations and confirming the US Federal Reserve's warnings that inflation is likely to persist. Both the Dow Jones and Nasdaq fell sharply in response to the news. The core inflation rate, which excludes food and energy prices, also rose to 4.7% over the year. The Fed has raised interest rates steadily since March 2022, warning that further hikes are expected to counter inflationary pressures. The institution also stressed that the road to exiting inflation is long and bumpy.

Conclusion

Inflation will be with investors for a while longer. It has been in retreat since the 2022 high, albeit falling slowly.
As long as the economy does not suffer from the higher interest rates, a positive trend should prevail on the stock markets.
Only when there is clarity about the course of the economy and thus about the profit development of the companies will we experience a sustained boom on the international stock exchanges again.