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Another Friday Rally? Inflation Net Higher Prices Comes In Lower Than Expected

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For the past three months, we've seen a rally in the stock indexes every Friday. It looks like the pattern is likely to hold today.
This morning the government released its inflation numbers, revealing that inflation rose at a faster clip than than it has in years. It's actually the second biggest jump in sixteen years. But once you back out energy, food and a bunch of other things with higher prices, it turns out that inflation is slowing. At some point someone gave this the nifty name of "core inflation," which helps everyone feel better about ignoring the other number. After all, are you really going to price equities based on peripheral inflation? If so, you're probably on your own. Everyone else uses that core number. So the yesterday's afternoon rally in the stock indexes looks like it will be followed by another this morning.
Is it problematic to have two inflation numbers moving in opposite directions? Probably not. The Consumer Price Index is an invented number that doesn't necessarily do a good job of reflecting the underlying financial reality. Primarily, the inflation it measures is price changes in certain goods rather than the government inflating the money supply. So once your calling one set of 'measured price changes' inflation, why not just call another set inflation?
More fundamentally, since what people are really wondering is not how an inflation might be creating malinvestments and distortions in the economy but how the Federal Reserve will react to the numbers, it probably makes sense to base everything on core inflation. But you might want to keep in mind that we're basically engaging in Kremlinology here--guessing what our central economic planners will do.
So what does Fedlinology tell us? The Fed likes inflation to be down around 1% to 2%, and core is now at 2.2%. This is called "good news about inflation" or "cooler than expected."