In a famous “Monty Python’s Flying Circus” sketch, a man who bought a “Norwegian Blue” parrot brings the obviously dead bird back to the pet shop for a refund. The shopkeeper behind the counter responds that the parrot isn’t dead … it’s merely “resting.”

Is inflation dead, or merely resting? The latest U.S. consumer price index (CPI) reading offers a mixed answer.

The U.S. Bureau of Labor Statistics (BLS) reported Tuesday that the CPI rose 6.4% in January versus a year earlier, higher than the expected 6.2%. However, the January figure represented a modest slowing from 6.5% in December, and down markedly from a peak of about 9% in mid-summer 2022.

On a month-over-month basis, the numbers are more worrisome. The “core” CPI rose 0.4% (after extricating food and fuel), a rapid pace of growth that matched December’s increase and higher than the estimate of 0.3%. Core CPI was up 5.6% from a year ago, higher than the estimate of 5.5%. The following chart breaks it down:

“Super core” services inflation, which is closely watched by the Fed and excludes food, energy and shelter, rose 0.2% for the month and was 4% higher than a year ago.

Housing prices continued to dominate the CPI report, representing nearly 50% of the monthly spike in inflation. The shelter category of CPI, which accounts for 30% of overall CPI and 40% of the core gauge, jumped 0.7% month-over-month and 7.9% over the previous year. Federal Reserve Chair Jerome Powell has previously indicated that he closely watches the housing component.

Price increases are no longer unrelenting, as they were during 2021 and for the first half of 2022. But the path back to normalcy won’t be fast and in a straight line. The Fed still has work to do.

In the wake of the CPI report, the main U.S. stock market indices bounced between red and green and finally closed mixed on Tuesday as follows:

• DJIA: -0.46%
• S&P 500: -0.03%
• NASDAQ: +0.57%
• Russell 2000: -1.23%

Remember, we must rely on at least three different types of inflation data. The CPI is only one type of snapshot.

Although the CPI is the best-known inflation indicator, it has two shortcomings: 1) It only tracks spending by urban consumers; and 2) it gathers data from household surveys, which can be unreliable.

The producer price index (PPI) measures wholesale prices and as such, it’s considered a leading indicator of inflation. The PPI for January is scheduled for release February 15.

The Fed prefers the personal consumption expenditures index (PCE), which is a much more expansive metric than either the CPI or PPI. The PCE tracks prices paid for a basket of goods and services by consumers, employers, and federal programs.

The PCE is calculated by collecting retail-sales data from businesses. The next PCE release, for the month of January, is scheduled for February 24.

The Fed is trying to pull off a soft landing, i.e. curb inflation without torpedoing the economy. But that’s always a difficult maneuver to execute, exacerbated by the worsening calamity in Ukraine.

The COVID pandemic initially ignited inflation by creating supply imbalances and shortages, many of which are now healing.

However, as the pandemic wanes and the energy sector regains equilibrium, a major source of inflation continues to be Russian President Vladimir Putin’s war and its disruption of the global supply chain.

Since Russia invaded Ukraine in February 2022, food, energy and commodity prices have soared around the world. As spring approaches, Russia is making moves that indicate the country will launch a massive military offensive, using conscripts, prisoners, and mercenaries as cannon fodder.

Another global “black swan” could take soon take flight, in the heart of Eastern Europe, and further setback the efforts of central banks around the world to curb inflation.

When the grass gets greener…

Autocrats, wars, pandemics…they come and go. Don’t abandon your investment plan. If you’re properly diversified, hunker down and be patient.

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John Persinos is the editorial director of Investing Daily.

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