Inflation Remains No Threat as the Dow Bounces Back

On Tuesday, the Dow Jones Industrials made its best argument for why the five-year bull market could be far from over, rebounding from losses of more than 100 points to end the day up almost 90 points. Although positive earnings results gave the Dow an initial kick-start Tuesday morning, the average quickly gave up that early gain on fears that a looming stock market correction was imminent. Still, one area where policymakers have few worries is on inflation, and although the news isn't entirely good for energy giants Chevron and ExxonMobil , consumers have to be happy about the trends on the price front.

What inflation?
The Bureau of Labor Statistics announced this morning that the Consumer Price Index rose 0.2% in March, following gains of 0.1% for each of the first two months of the year and leading to a 1.5% rise in year-over-year consumer prices. Core inflation also rose 0.2%, with rising costs of medical care, apparel, and airfare offsetting decreases in household furnishings prices, as well as the costs of recreation.

Image credit Flickr/Lindsey G.

The interesting tug-of-war on the inflation front, though, is happening in the energy arena. Prices of gasoline and heating oil fell sharply last month, bringing the energy-commodities sub-index down 2% in March. Yet energy-services prices soared, as electricity costs jumped 1.1% and gas-utility services rose 7.5%, continuing trends that have lasted all year.

The disparity between price trends in those two parts of the energy industry highlights the opportunities for companies that specialize in each of those areas. For ExxonMobil, Chevron, and other oil and gas production companies, economic challenges continue, with domestic crude fetching less in proceeds that oil on the world market. Even as natural gas prices have risen dramatically from their lows last year, they remain far below what you'd pay in other areas of the world, curtailing the economic incentive for Chevron, Exxon, and especially their smaller peers to drill natural-gas wells.

By contrast, though, the act of actually delivering energy in a form that consumers want and need has been much more lucrative lately. Electricity prices have risen more than 5% at the consumer level over the past year, while natural-gas service is up a whopping 16.4% over the same period. Those trends are partially responsible for the jump in utility-stock prices, with one prominent utility-stock sector ETF having soared to its best level since before the financial crisis -- despite interest rate concerns that would normally hold those shares back.

Inflation doesn't appear to be a concern for the stock market on the whole, but that doesn't mean investors should ignore the impact that price trends can have on particular industries. By digging into inflation data, you can get valuable insight that can make you smarter when it comes time to choose investments in promising sectors.

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Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Chevron. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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