​Traditions Wealth Advisors
Brien L. Smith, CFP®/Kristina Badrak
TWA CEO/Financial Analyst Intern
February 23, 2024

Consumer Price Index
Amid fluctuating economic forecasts, January 2024 Consumer Price Index (CPI) data release stands as a testament to resilience in the face of adversity. Capturing the spending patterns of urban households, which constitutes about 93% of the U.S. populace, the CPI saw a year-over-year increase of 3.1% and a month-over-month growth of 0.3% in January—figures that exceed the modest 2.9% annual inflation rate anticipated by analysts. This unexpected rise not only indicates concerning developments for markets and policymakers alike but also signals that the Federal Reserve might need to maintain higher interest rates for an extended period to counter inflationary pressures.

According to the Bureau of Labor Statistics (BLS), the shelter sector emerged as the dominant driver of January's inflation, contributing 36.191% to the CPI's weight. This sector experienced its most significant price jump since April 2022, with a 6% rise on an annual basis. The shelter index is broken down into four critical components: owners' equivalent rent (OER), rent of primary residence, lodging away from home, and tenants' and household insurance. Notably, OER and rent of primary residence, with CPI weightings of 26.770% and 7.671% respectively, stress the extensive nature of housing costs. OER, an estimate of what homeowners would pay in rent for comparable living spaces, alongside rent of primary residence—the direct rent costs faced by tenants—underline the scope of housing expenses. Despite the Bureau of Labor Statistics (BLS) updating its approach in January 2023 to use one year of spending data for CPI calculations, thereby reducing the data inclusion lag from consumer purchases from 36 to 24 months, the Federal Reserve continues to prefer the Personal Consumption Expenditures (PCE) Price Index for assessing inflation.
 
Economic Outlook
The forthcoming PCE report, due on February 29th, is anticipated to have a significant impact on the Federal Reserve's monetary policy decisions. The index is highly regarded by the Fed over CPI for several reasons: it covers a wider range of household expenditures, including those paid on behalf of consumers, and more accurately reflects changes in consumer behavior and the substitution effect.

Recent evaluations by Morgan Stanley indicate an expected uptick in January's core PCE to 0.29% monthly, marking a rise from the previous 0.17%, spurred by CPI increases. In a similar vein, Goldman Sachs has recalibrated its economic forecast, trimming its prediction for first-quarter growth from 2.9% to 2.3% and elevating its projection for January's core PCE inflation from 0.35% to 0.43%.

The upcoming week is anticipated to shed light on these inflationary patterns in hopes of providing a more detailed understanding of the current and future fiscal environment. With the PCE prized by the Fed for inflation monitoring, the indicator will play a crucial role in guiding interest rate strategies. The notable gap between PCE and CPI, especially given the persistent rise in shelter costs affecting the CPI, stresses the complex challenges of navigating the lasting effects of the pandemic.
 
Sources:
https://www.reuters.com/markets/us/us-consumer-prices-rise-more-than-expected-january-2024-02-13/
https://www.bls.gov/cpi/factsheets/owners-equivalent-rent-and-rent.htm
https://www.economicsuncoveredresearch.com/p/shelter-and-the-cpi-everything-you

​Tax season is here! Tax-related identity theft happens when criminals use your personal information to file a return in your name and claim your refund. Victims are waiting an average of almost 19 months for the IRS to process their returns and issue refunds, the National Taxpayer Advocate reported. There are also two key steps taxpayers can take to protect themselves.

1. File EARLY!
One of the best ways to avoid tax-related identity theft this season is by filing your return early. Do not let the scammers have time to come in and steal your information. File before they can! Further, protect your online filing with strong passwords and multi-factor authentication. 

2. Get an identity protection pin!
If you’re looking for added protection, experts suggest getting an identity protection PIN, or IP PIN, from the IRS. This six-digit number blocks others from using your Social Security number or individual taxpayer identification number to file a tax return. Once you enroll, the agency generates a new IP PIN for you each year. Previously, IP PINs were only for identity theft victims. Now, they’ve opened it to everyone. However, it is too last minute to get an IP pin before filing your 2023 return. It is best to file your 2023 return now, and get an IP PIN for next year. Want to learn more about the IP PIN and how to get one? Click here.

Source: https://www.cnbc.com/2024/01/18/how-to-protect-yourself-from-tax-identity-theft-this-season.html?__source=sharebar|email&par=sharebar

Please reach out to our in-house, tax-smart planning director, [email protected] or call her at 979-694-9100 with more details and questions about the above article.