Consumer Price Index Inflation Update

GREAT news today on inflation. The CPI report was released this morning at 8:30am and Wall Street estimated it would show inflation is up 6.5% over this time last year. The report came right inline with estimates. The CPI showed inflation at 6.5%. Of course that’s still high and well above the Feds target of 2% but the chart here shows the dramatic effect the Feds rate hikes are having on inflation. Inflation has plunged 30% over the past 6 months.

At the rate inflation is dropping the Fed likely will raise rates 1 or 2 more times then pause. The next rate hike will take place on February 1st and will likely be a quarter-of-one-percent hike, or 25 basis points. If the jobs and CPI reports in February and March come in at or below estimates the Fed will probably raise another 25 basis points in March then pause and lets rates remain at their elevated levels through 2023; unless the economy falls into a deep recession.

As for the market, the data today was welcomed. As seen in the chart, the market is aware inflation is cratering and hasn’t come close to retesting its lows made in October last year. Today’s data reinforces that inflation has peaked. Now, we have to see what the Fed will do. They say they are “data dependent” but their continued tough talk shows they seem to be more interested in getting rates to 5% vs. following the data. Last month Fed members stated they see rates needing to get to 5% before they’d pause. The Fed Funds Rate, the rate the Fed controls, is currently at a range of 4.25% to 4.50%. Regardless of how much more the Fed raises, we are close to the end of this hiking cycle. It’ll most likely end by midyear, if not sooner. At that point the market can finally breath and begin to stabilize and/or rally.