The Battle of the Inflation Reports, Who’s Right?

Which is more important in determining the actual inflation data? PCE or CPI? In this episode of The Closing Bell, Mark and Jason dive into how each report is constructed and review some startling facts about inflation growth.

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Important Disclosures:

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

All performance referenced is historical and is no guarantee of future results.

All indices are unmanaged and may not be invested into directly.

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

Investing involves risk including loss of principal.

Jason Jacobi & Mark Boyer are registered principals with, and securities and advisory services offered through LPL Financial. A Registered Investment Advisor. Member FINRA/SIPC.


Jason Jacobi, CFP® (00:01.138)
Happy Friday everyone. Jason Jacobi and Mark Boyer here with your closing bell for March 1st. We’re here the end of the first quarter. Earning season’s pretty much over. It’s been a good earning season. Mark, you know, it’s pretty crazy, isn’t it? It’s been a heck of a start to the year, wouldn’t you say?

Coach Boyer (00:19.662)
Yeah, yeah, it’s kind of that old saying how the beginning of January goes. So it goes the market, especially early on. So we’ve had a big run here. So interesting today, the NASDAQ actually we talked about this in the past. So just real quick, I mean, maybe it’s good to share this, but today, I mean, the market hasn’t closed as of this this call yet. But let me just show you the NASDAQ.

The NASDAQ is the one we’ve been waiting for to see if it would eventually get to that place where it breaks out and gets to new highs. The Dow, we talked about the Dow, the S &P has hit new highs over the last few weeks and the NASDAQ, was it last week or was it the week before? I think I said, hey, there’s going to be a natural tendency for that NASDAQ to head to its highs. And here’s the chart if you’re viewing this podcast. You’ll see going back here,

We had a high back in 2021, late 2021 of 16 to 12. And so this is a weekly chart. And the last couple, and then way over here to the right is currently the last couple of two, three weeks. We were kind of getting closer, closer, closer. And then we see here that it’s actually broke out this week. Let me go to now just showing you kind of that other chart, but here’s the breakout today.

We’re up a couple hundred points on the NASDAQ again, and we still got time to go here on this Friday, March 1st. Can you believe it’s March 1st, by the way? It’s crazy. But yeah, so anyway, that’s interesting. And then I think the other, it’s been talked about, it’s a run of the Magnificent Seven or whatever, the kind of these stocks that have been…

kind of running that whole show. And we’re getting a little bit, I was looking at some equal weighted indexes. Here’s the NASDAQ equal weight first trust has the same thing. So equal weighted trust at the top 100 and an equal weighted basis. We’re still also getting, you see here, we’re breaking out to new highs there. So that’s a good sign. I mean, it’s not just the MAG -7, but there’s a lot of other stocks that are moving in here. So anyway, that’s, you know,

Coach Boyer (02:34.894)
Good news. So what does that mean? Uh, you know, sell run for the Hills. We’re at a top and it’s all going down from here. Um, you never know, right? You don’t know that, but at the same time, typically when you break into new highs, um, there’s a real chance we see it continue here for awhile. Um, cause we’re, you know, you have no more resistance. So sellers kind of been burnt if they’ve sold at the top. Now that it’s moving forward, you get this fear of missing out FOMO and you can, you know, it can continue to run, especially with where interest rates are right now and so forth. So.

Yeah. All I’ll say is probably wise to be keeping an eye on things, you know, if you’re a trader, but if you’re an investor, you know, just enjoy the ride for now. So anyway, I think it’s a, we’ll see what continues to go on.

Jason Jacobi, CFP® (03:19.634)
Good points. And you know, just so we get a quick recap of the week so far, we’ve got Dow Jones, you know, pretty much trading flat this week down 0 .16 at the time of recording on Friday morning. Excuse me. The S and P 500 up about 0 .89 % and the NASDAQ. You think it’d be leading the way. It’s not small caps leading the way this week, 2 .9 % almost 3 % for the week, you know, pairing off of the NASDAQ, which is up almost 2 % for the week. So.

Coach Boyer (03:44.79)

We got the Russell today. I mean, it’s breaking. I mean, it’s really been moving up here. And today we’re, we’re not breaking out. We still got a long way to go to get to highs on the, on the, on the Russell 2000. Small caps have not participated at all. Like, you know, the other larger caps, but a lot of that has to do with that banking crisis we had last year. And, you know, just kind of a lot of these stocks in the, in the, in the Russell don’t make money. So anyway, all that said is that, you know, it’s good to at least see the small caps participating for sure.

Jason Jacobi, CFP® (04:16.05)
And I think it is because of what we’re going to talk about today, the PCE versus CPI numbers. We had the personal consumption expenditure report from the commerce department actually come out this week, which is actually what we want to focus on. But I think that is why small caps are actually having a great week because it’s showing that inflation actually based off of the latest report is trending in the right direction, sub three numbers. So, and that’s actually the report that the Fed actually looks at.

when they’re looking at cutting or raising interest rates. So thus small caps go coming out of an economic slowdown out of high interest rate environment, which obviously hurts small American companies. This could be a nice springboard for the Russell 2000, but mostly the, the profitable or trying to be profitable small cap space. So this will be a good segue. All right, everyone. So,

We have two numbers we look at, right? We look at the, the PCE versus the CPI report and the Wall Street journal actually had a great article on it this week. So we really want to decipher what these are about. Mark’s actually does some awesome research, which we’ll get into just off of housing prices, which we’ll get to in a second. Uh, which I think you’ll find very interesting if you’ve tried to buy a house recently or if you have, or if you’re going too soon, right? So Mark one says 2 .4%.

Coach Boyer (05:32.974)
See you.

Jason Jacobi, CFP® (05:40.754)
And another says 3 .1, PCE says 2 .4, CPI, which is the labor department’s version, says 3 .1. So which one is right? Before you answer that question, let’s talk about the differences. I know, right? I think there’s a lot more hidden numbers in the pudding to use a food analogy there, right? We all feel that.

Coach Boyer (05:56.45)
I don’t know if either one of them is right, honestly, it feels.

Jason Jacobi, CFP® (06:09.074)
in our pockets in the grocery store. But I think it’s important to talk about the differences of the two. So CPI is actually done again by the labor department. And that’s a monthly report on the consumer prices. And that’s generally thought of as the inflation report, you know, it generates headlines, it features in politicians speeches and moves markets. And then obviously that report that came out earlier this month showed a hotter than expected report. And that sent

Coach Boyer (06:14.254)

Jason Jacobi, CFP® (06:38.13)
The Dow Jones actually tumbling more than 500 points. So, um, but you know, the labor department’s figures aren’t the feds focus actually instead they focus and they base their 2 % inflation target on the data that comes out of the commerce department’s version, which is the PCE numbers that we saw this week. So labor department CPI based off of household surveys on an annual basis.

That’s what the consumer says they’re spending money on. And it’s actually shown that they actually kind of fudge their numbers a little bit. They lie. So numbers actually show, Mark, that consumers say they spend half of what they actually spend on alcohol. So they spend double the amount on alcohol than they actually say, if you actually look at the numbers, which is interesting. So that just shows you that things actually are kind of off and it’s about what they say in that report rather than actual.

Coach Boyer (07:14.572)

Jason Jacobi, CFP® (07:34.52)
spending numbers, which is what the commerce department, the PC numbers are based off of. So it’s actual spending and for the cost of goods and services. So I thought that was kind of interesting.

Coach Boyer (07:41.134)

Coach Boyer (07:46.718)
Yeah, and the article talked about Alan Greenspan somehow, you back, you know 20 years ago, you know, they kind of made a decision that they wanted to you know, go with You know the the PCE And Versus the CPI. Anyway, there’s a lot there. It’s a great article. You guys could read it But you know, I don’t know Jason when he did

I think that it feels like lately the CPI, that’s the number they go off of, or the CPI is what we all are seeing and what the feds go off is the PCE, which happens to be, PCE, personal consumption, expenditures, being lower, it’s a little softer. And so does it make it look better? I mean,

It looks better, right? I mean, in the sense right now and the gap actually is it as the article is, is, is never been wider right now is how those two numbers, the comparison it’s usually tighter than this. And so the question is CPI is still pretty high, not close to the 2 % where PCA is better. And so they’re, you know, feds kind of saying, Hey, we’re anyway. Yeah. So all that to say is that, yeah, I don’t want them to necessarily raise rates anymore or, you know, and go off PC, but.

but it’s just interesting to see what’s happening here. What an interesting that I found when I read that article and I think about the difference between the two is housing, rents, things like that represent 34 % of the CPI. So if you have a higher number in a CPI could be because it’s, you know, it’s 34 % of that, that index versus in the PCA that the feds using, it’s only 15%. So those are shelter costs. Normally like,

Jason Jacobi, CFP® (09:16.88)

Jason Jacobi, CFP® (09:33.394)
There you go. Yeah.

Coach Boyer (09:35.904)
rents, things like that. So you have a much bigger, and I know for most people that are listening to this podcast, they’re seeing the prices in that area is an area that they see there. For me, I’m watching my kids and just dealing with trying to buy a house nowadays, whatever is not so easy. And then it just makes it tougher. And so it feels a lot heavier than I think what the PC is saying.

for the normal consumer out there. So it’s really interesting, you know? And any more, man, I don’t even know, like, the government seems, you know, yeah, and you sit in a line, you know, are they using the numbers to their advantage? I don’t, you know, I don’t know. It just, it feels a lot heavier than what they’re saying, I think, for most people.

Jason Jacobi, CFP® (10:24.114)
Yeah. And I think that’s a good point you brought up the discrepancy, the weighting of the housing sector, um, shelter costs and the discrepancy of this PC, PC and CPI numbers and the overall weights of each of those housing in those could be a portion of why there’s such a big, you know, Delta big difference again, largest in 60 years. So, um, why don’t you, why don’t you talk about.

Coach Boyer (10:47.278)
Yeah. Well, but also PC, another thing to remember is that it also excludes food and energy. Okay. So housing costs are less of it. And then also it excludes food and energy. Thus, you know, again, yeah, the core number that again, so thus, I mean, you throw out food, you throw out food and energy, and then your housing component is less in it. Right. I mean, it just seems like.

Jason Jacobi, CFP® (11:02.898)
In the core number.

Jason Jacobi, CFP® (11:07.714)

Coach Boyer (11:16.622)
All right. Well, so is that really accurate? I mean, I went to Costco the other day. I go, I feel like every, it’s just me and my wife, Shannon. Oh, it’s just my wife and I, but we got family, a lot of grandkids and stuff, but it’s just like, wow, food prices are, it’s, you know, right. I mean, you’re a father of two with another one. Holy smokes. I mean, it’s really expensive and you throw forches like you just throw that number. That’s not a part of the number. I mean, come on. I mean, that’s what.

Jason Jacobi, CFP® (11:32.498)
Yeah. Oh yeah.

Coach Boyer (11:46.446)
That’s what people are spending money on and then energy, right? The cost of you stop drilling, you know, prices go up, you know, we don’t count those. I know it’s just like seem sort of, uh, I mean, okay, that looks great, but it’s like, really? I mean, it seems sort of, uh, you know, it helps, it helps you on a personal basis if you’re, if you’re just measuring those numbers. So anyway, crazy.

Jason Jacobi, CFP® (11:49.426)

Jason Jacobi, CFP® (11:55.57)

Jason Jacobi, CFP® (12:02.202)

Jason Jacobi, CFP® (12:11.57)
Why don’t you share the data that you did some research on this morning, just in terms of housing, right? Cause obviously housing has been a big talk. Housing prices have actually been pretty stable in terms of because of supply solo, right? It’s not because rates went up, you’d expect prices to drop a ton, but inventory has been so low that prices haven’t come down as much as a home buyer or potential home buyer would like. So why don’t you share what you found from 1985?

Coach Boyer (12:18.316)

Coach Boyer (12:24.814)

Coach Boyer (12:39.406)
Yeah. And this has, uh, I mean, it’s not, it’s a little bit off of the CPI PC, you know, uh, but it, but it kind of, I think it actually, um, is also though a part of it too. And this came from a conversation my wife and I’ve been having lately, it just in regards to, um, you know, how hard it is today versus for younger people to buy single family homes. Now we live in, you know, we live in orange County, California, one of the, you know, uh, you know, it’s, it’s.

probably California being as a whole, the highest home prices in the country and have been for a while. The weather’s great. There’s a lot of people moving from here, but still, I don’t know. I mean, everybody talks about, I know lots of people that have moved, but somebody’s bought their house. So I don’t know. And that’s part of this question here, but interesting. So when, and I just use these numbers because it’s when I, my wife and I bought our first house when I was,

Jason Jacobi, CFP® (13:24.594)
Right. Right.

Coach Boyer (13:37.998)
a rookie in the NFL and, you know, got a little signing bonus, $20 ,000, which to us was a ton of money back in the day. Um, but, uh, but I looked at some numbers just on a national basis of, of average income back in 1985. Okay. So it’s 38, roughly 38 years ago. The average income was 23 ,600. Okay. Or, uh, for, for a family, a household family. Okay. 23 six. And at the same time, the average home,

Okay. Remember interest rates were much higher in the late seventies eighties in my, my first home in 1985, I got a 12 and a half percent interest. Okay. And I thought that was a deal. I think about it like, dude, 12 and a half percent. That’s a deal. Um, and, uh, but the average home at that time was worth 84 ,000. Okay. Um, so 80, you know, income 23, six average home, 84 ,000. Let’s fast forward to 2023, 38 years later.

Jason Jacobi, CFP® (14:17.618)

Coach Boyer (14:35.512)
Average income, $59 ,400 on average. This is national, okay. $59 ,000 a year. Average home, $759 ,000 average home. Okay. That’s basically, so back in 85, a home cost about three times much. The average home cost about as three times more than an average salary. And in 2023, it’s almost 13 times. Okay.

So that’s crazy. So wages, I ran some numbers on wages. So wage inflation along that way. So wages have increased year over year for 38 years based on those numbers, 2 .46%. At the same time, housing has increased 5 .96%, okay? More than double, all right? If we turned it around and invested the money just to give you a perspective on that, if you had 100 ,000 in 1985 and invested it,

Jason Jacobi, CFP® (15:24.338)
Mmm. Mmm. Yeah.

Coach Boyer (15:34.574)
at the inflation rate of wages. Today, you would have $252 ,000. $100 ,000, now today, $252 ,000. If you did the same thing at the housing number, $100 ,000 at housing in 1985, today, at 5 .9%, almost 6%, 5 .96%, you would have $902 ,000. Okay? So $252 ,000 invested versus $900 That’s a big difference. And that gives you the scope of how

housing has gone up significantly in that time. You and I asked the question, why is that? You asked, so why did that happen? Well, that could be another whole podcast and something, but why is housing so much more expensive for the average home buyer today than it was then? Well, a couple of ideas. One is, at that time we saw a 40 year rain basically of interest rates coming down. So as interest rates came down from 85, like,

You could, you could re you know, interest rates kept coming down 12 and a half percent. They came down. People were, you know, refinancing, taking money out, refinancing all the way down to what? I mean, all the way down to, uh, 2005, 2007, actually 2000, you know, it was just a long, consistent period of time. Uh, really up until, uh, actually just a couple of years ago, you know, 40 years, it was basically 40 years of declining interest rates. So it was.

Jason Jacobi, CFP® (16:53.488)

Coach Boyer (17:02.254)
very beneficial for housing, right? Very beneficial. And then now we’ve got rates are, and then oh, eight happened and then they forced interest rates down, financial crisis, all these different things. So could be that maybe because of the lower interest rates over that period of time that the value of homes, cause you could afford more, cause you could borrow more at lower payments, lower interest rates was probably a positive, right?

Jason Jacobi, CFP® (17:25.842)
Yeah. Yeah.


Coach Boyer (17:29.838)
That could be one thing. Another thing I thought of is that I know it’s been about 20 years now, it seems like, and really around 07, 08 in that era too, but even before then you were getting a lot of, you know, Blackstone, different companies were actually starting to buy homes, single family homes. They used to just dwell in, you know, in, in apartment buildings. And then I think,

It really exploded in the financial crisis because, you know, homes were going for closures like crazy and a lot of private equity, you know, institutional, you know, companies came in and actually using investors’ money, started buying rental properties in areas that are actually, you know, used to be where young families would grow and, you know, get homes too. So that could be part of it. You know, I guess I saw an estimate on that. It’s like 24, 22%.

I read an article, 22 % of America homes were owned by corporations or professional or institutional ownership in 2022, which I don’t believe 38 years ago there was much of any of that happening in the single family home market. So that could be another issue there. But that’s, again, all these things said, I think, bite into the fact that it feels like inflation is a lot higher. It’s a lot.

more, it’s a lot heavier on consumers today than it even feels like the Fed is talking about. I mean, you’re a young guy. You agree? Yeah.

Jason Jacobi, CFP® (19:02.322)
I agree. A hundred percent. Yeah. That’s a, I mean, it’s, it’s crazy how much money you have to make to just, I mean, I mean, the, the data even shows, I think it’s, don’t quote me exactly, but there was a news article, uh, maybe it was wall street journal as well, talking about a majority of Americans making 150 ,000 or 200 ,000 and more are living paycheck to paycheck. Now, a portion of that might be, you know, poor spending habits, but also cost of food, energy,

Um, you know, dwelling is, has gone up exponentially. I mean, so I ran numbers, you ran the housing numbers. I ran numbers for car prices and energy. I was just curious on, on what that looked like. But, uh, but from 1985 to 2024, uh, you know, uh, car prices have gone up around 64%. Um, and that, in that time period now energy, so we’re going to use a purchasing power equivalent of a hundred dollars.

Coach Boyer (19:54.99)

Jason Jacobi, CFP® (20:01.53)
1985 right so $100 in 1985 would be equivalent to $608 today

Coach Boyer (20:10.35)
Mmm. Wow. Yeah.

Jason Jacobi, CFP® (20:12.274)
So incredible. It’s just an incredible jump, obviously with inflationary numbers. We’re all feeling it in our pockets. Um, and while we think, you know, numbers are going to continue training in the right direction, you know, core CPI and core PC, which are higher than the headline numbers right now are actually probably going to be bumpy till spring. Um, and then obviously as we move towards second half of the year, I think, I think as the feds starts talking about cutting rates, they already kind of started.

Maybe June, potentially. Again, I don’t want to be super specific because we don’t know. We don’t have a crystal ball, but we should get those cooling numbers and those rate cuts starting in the second half of the year. If numbers continue to trend in the right way.

Coach Boyer (20:55.726)
Yeah. So what’s the answer? I mean, you know, it’s not, uh, it sounds do me gloom, right? But it’s so part of it. So I think that’s, you know, uh, I think we’ll be higher for longer. We’ve talked about that here, you know, and, and a lot of people thought that we’re going to cut rates, cutting rates would be fantastic. And, you know, obviously, cause, uh, you know, um, you know,

you can refinance and that’s part of the reason why housing hasn’t changed because people are just sitting on very low interest loans. Why would they come in now at 7 % right? And so, yeah, I mean, so those are things. So lower rates would definitely help. Um, but I wouldn’t mind, you know, in some ways, you know, to that, uh, you know, we can’t go so crazy, uh, on the low interest rates that, uh, there’s a balance in there. I think I don’t know. I’m just.

rambling here, but I think there’s a balance in there of what, where, where the right interest rates are to kind of slow this thing down. I think our leadership, you know, it’s an election year this year. Leadership is critically important. We got to get our fiscal house in order. It’s a, we can’t continue to go down this type of path. And there’s some pain to that, you know, I mean, uh, any of us have to, um, you know, if we’re spending more than we’re, we’re making, uh, at some point you gotta, you gotta come to grips with reality and start to really.

Jason Jacobi, CFP® (21:55.378)
Yep. Yeah.

Coach Boyer (22:14.286)
a cutback on something. So our government needs to do that. It’s silly what’s going on. And so this is a good, you know, so hopefully we, you know, we get some, some better leaders, some, some better decisions in there. But yeah, so that, that’s going to be really important. So anyway, uh, interesting numbers. It’s, uh, it was interesting to see that. And, and then again, I think just wanted to, I think today we just wanted to bring some reality to the point that, you know,

What the numbers are using CPI versus PCE, all good. But in the real world, a lot of other things factor into how people are feeling about where inflation is right now. So.

Jason Jacobi, CFP® (22:50.994)

Yep. So, so regardless, CPI, PCE in reality, it might not be what you feel in your pocket. So didn’t have a word to rhyme there, but you know, we’ll, we’ll leave it up to you. Uh, but PCE, honestly, uh, things are turning in the right direction. It’s looking good. Uh, so when rates start cutting again, you’ve got that cash extend duration a little bit. If you can, if you don’t need the money and that fixed income field, right. We’ve been preaching it for a whole while.

Coach Boyer (23:04.206)
That’s a good try.

Coach Boyer (23:21.55)
Yeah. Yeah, for real.

Jason Jacobi, CFP® (23:24.53)
All right. Well, we will see you next week. Thanks so much for watching and listening to the closing bell. We appreciate you all until next time.

Coach Boyer (23:33.006)

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