over 1 year ago • 1 min
The latest US inflation data is fueling the fire for the “inflation has peaked” narrative, with prices rising by a milder-than-expected 7.7% in October compared to the year earlier. That marks a significant slowdown: September saw an 8.2% rise.
The consumer price index’s “core” measure (the one that excludes the prices of more volatile stuff like food and energy, was also cooler than expected, at a 6.3% annual rate, and lower than September’s 6.6%.
Lower price tags on food, energy, used cars, and medical care helped to drive the index lower.
But rental costs remained sticky in October because rents are fixed for longer periods, price changes tend to happen with a lag of six to nine months. Real-time rental company data, however, suggests that those prices have begun to soften.
What’s more, inflation is still running significantly hotter than the Federal Reserve’s (the Feds) 2% long-term target, so it’s probably too soon to pop the Champagne corks. Nonetheless, investors appear to be taking this softer inflation report very positively for now.
They’ve responded by downgrading the peak rate for the Fed to between 4.84%, from over 5% previously. They now expect a 0.5 percentage point hike in December, rather than a 0.75 percentage point move. Assets most sensitive to interest rates, such as the NASDAQ 100, bitcoin, USD/JPY, gold, and US 10- and 2-year bonds put in some explosive moves after the data’s release, with the NASDAQ 100 up over 4% and bitcoin rising nearly 10%. The US 2-year yield (a proxy for the Fed’s rate) meanwhile collapsed by over 0.2 percentage points. Maybe, just maybe, we may see a Santa Claus rally in stocks this year.
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