Market commentary

The Consumer Price Index rose 0.5% in December while the core CPI (ex food and energy) rose 0.1%. Year over year the headline CPI rose 1.5% which is the largest rate of increase since December 2009. However, core CPI increased only 0.8% year over year. Again, as with the Producer Price Index the biggest increases came from energy-related expenses and gasoline, up 4.6% and 8.5% respectively. Food costs also rose, as I discussed in Thursday’s commentary, although the U.S. is not experiencing the same phenomenon as other countries. Bloomberg news reported large crowds gathered today in the capital of Jordan to protest the rapid increase in food prices.

U.S. consumers are taking note of higher energy and food prices. As these prices increase consumers slow spending as noted in December’s retail sales data. Retail sales rose at a less than expected rate of 0.6% in December. and excluding auto and gas, retail sales rose only 0.4%.

The current strength in the U.S. economy is coming from the manufacturing sector as noted by the Industrial Production data, reporting an increase of 0.8% in December, the most in five months.

Ignoring the above expectations increase in the CPI, bond prices are improving this morning for a third day. Both Wednesday and Thursday mortgage lenders improved pricing mid-day. Not that I expect this will happen again today, but it is nice to go into the long weekend on a positive note.

Remember, HSOA is closed Monday, January 17, 2011 for the Martin Luther King, Jr. Holiday.