Inflate This!


Happy Thanksgiving everyone! This is not about footballs! Inflation data over the last week has pointed to an underlying theme of firming prices.


Inflation data came in at a whopping 0.2% year over year for October (Consumer Price Index, CPI) … So where is the inflation pressure? Core CPI, which removes fuel and food from the equation came in at 1.9%, just 0.1% off the Federal Reserve Board (FRB) target of 2.0%[1].

Also, last week the FRB minutes from the October meeting were released and pointed to the real possibility of the FRB raising interest rates at their December meeting.

All this being said, the markets lost ground last week, right? Wrong, the markets advanced strongly indicating a readiness for the next phase of the current expansion, which is marginally tighter interest rates. They clearly are not wanted; however, given current conditions the markets seem to be saying that they are warranted. The Dow Jones advanced 3.35% and the S&P 500 grew by 1.47%[2].


CPI data released for the Eurozone tells much of the same story as the US. Headline CPI was a meager 0.1% annually, however core CPI was 1.1% annualized through October[3]. The clear distinction is the US’ proximity to 2%. European Central Bank (ECB) president, Mario Draghi, stated last week that they will continue to explore options within their asset purchase program in order to get an immediate rise out of inflation.


Major strides toward a free market environment were taken in China last week as they announced the manipulation of little used rates in order to influence the economy rather than direct manipulation.


3rd quarter GDP for Japan came in lower than expected at -0.8%[4] annualized. This marks the 2nd straight quarter in negative territory, which signals a recession. That being said, you would expect stock market returns in Japan to be soft during the week; quite the contrary as the Nikkei rose 1.4% last week[5].


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[1] www.investing.com – economic calendar

[2] www.troweprice.com – weekly market wrap-up

[3] www.investing.com – economic calendar

[4] www.mfs.com – week in review

[5] www.troweprice.com – weekly market wrap-up