Not for the first time, inflation numbers caught the market by surprise. The bad news was the S&P 500
saw the largest one-day decline in two years, slumping 4.2%. The good news if you’re checking your 401(k), you’re only back to last week’s levels, and futures are holding up in the early hours of Wednesday. One month of data is just one month of data, and there are still believers that the Fed in the not too distant future will stop the rate-hike campaign.
“With inflation expectations almost back down to normal levels and broadening disinflationary pressure showing up everywhere except the official CPI, we still expect both headline and core inflation to fall more quickly over the next 12 months than officials currently believe,” said Paul Ashworth, chief U.S. economist at Capital Economics. “The pivot isn’t dead yet.” But what a rotten month of data it was. The first surprise of the day was that core CPI was much hotter than forecast, and two methods of slicing the numbers by regional Feds contained further bad news. The Atlanta Fed’s sticky-price CPI gauge rose to 6.1% year-over-year from 5.8%. Remember, that’s a weighed basket of items of prices that are meant to change slowly (think, menus). The Cleveland Fed’s median CPI, meanwhile, accelerated to 6.7% from 6.3%.