Inflation is High Again, But Here’s The Upside

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Surprise, surprise. Another month, another new four-decade high for US inflation. This latest surge was 8.5% in March from a year ago, the Labor Department said Tuesday.

But we’re not going to bore you with what you already know. Go check out the butter aisle at the grocery store or gas up the car if you want another reminder. Instead, let’s take a look at an underlying sign that maybe, just maybe, things are starting to get better.

A Light at the End of the Tunnel?

Ignore the big fat headline number. On Tuesday, many traders were elated at the sight of a less-touted figure called the Core Consumer Price Index. The Core CPI — which measures inflation but without including super volatile food and gas prices — rose just 0.3% in March from February, well below the 0.5% consensus estimate of economists surveyed by Dow Jones. On an annual basis, the Core CPI rose 6.5%, also less than its 6.6% projection.

The less-watched statistic was welcomed and initially spurred a spike in major US markets, but, ultimately, it wasn’t quite enough to lift the major indices:

  • The S&P 500 and the Nasdaq inched down 0.3% and the Dow Jones 0.25%, a relatively zen reaction on another day of 40-year high inflation headlines.
  • In other good news, one of the most publicized markets hit by inflation, used car prices, fell 3.8% last month. Buying a car that’s hit the road before still costs at least 40% more than a year ago, so here’s hoping this becomes a trend.

“It’s a red hot number but the market’s reaction, for now, suggests it’s priced in, especially with the month over month core read coming in below expectations,” Mike Loewengart, managing director of investment strategy at E*Trade, wrote in an investment note. “The big debate is whether elevated reads like these are the new normal, or if we’re beginning to see a light at the end of the inflationary tunnel.”

I Saw the Sign: The 10-year US Treasury yield fell from a three-year high Tuesday, another indicator that investors — who use government bonds as shelter in risky times — think the Core CPI reading is a sign that the overheated economy is starting to cool down.