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US Inflation Rose: Is It Supporting the S&P 500 Movement?

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US inflation

According to data by the Bureau of Labor Statistics, the Consumer Price Index (or inflation index) for the United States was 0.20% in April 2017 compared to -0.30% in March 2017. That figure meets the market expectation of a 0.20% rise.

The rise in inflation is mainly due to better performance of the energy index (XLE), which rose nearly 1.1%, and the gasoline index. The food index rose nearly 0.20% in April.

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Will it impact the S&P 500 index?

In March 2017, the inflation index showed the first fall in performance in the last 13 months. That index is an important indicator of the US economy (IWM) (QQQ), and improvement shows that the economy is on a stronger path. A rise in inflation also shows that consumer participation in the economy is improving.

The S&P 500 index (SPY) has risen nearly 6.6% YTD (year-to-date). Improvements in macroeconomic indicators and a business-friendly sentiment under the Trump administration have mainly driven its movement.

The Fed looks at inflation when it makes a decision to raise interest rates. As the inflation index gradual rises, the Fed’s gradual rate hike process will most likely also continue. Rate hikes are appropriate when the economy is getting stronger. As the economy strengthens, the market will probably follow.

In the next part of this series, we’ll take a look at US retail sales in April 2017.

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