Under the CPI Hood, the Prices Are Calming Down

The US Consumer Price Index (CPI) inflation rate jumped to 4.2% y/y in May, up from April’s 3.8% y/y and sparking another round of inflation fear.[i] We saw handwringing about higher living costs eating all of the last year’s wage increases. We saw murmurings about potential Fed rate hikes and warnings that higher inflation will raise society’s inflation expectations and make them a self-fulfilling prophecy. And we saw some jollier analysts noting the inflation rate may be peaking, given oil prices are down -34% from recent highs.[ii] For stocks, we reckon all of this is beside the point. Markets move most on surprises, and nothing in this inflation report was new or surprising. Nor did it hint at bad surprises to come, despite Wednesday’s market drop. Stay cool and remember coincidence doesn’t mean causality. Read Full Article »