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CPI Underwhelms Today: Will the Market Heave a Sigh of Relief?

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US CPI underwhelms

The US consumer price index (or CPI) for September was released today at 8:30 AM EST. The inflation numbers were weaker-than-expected, with the CPI rising just 0.1% sequentially compared to 0.2% expected by economists. In August, the index rose 0.2% sequentially.

In the 12 months through the end of September, the CPI rose 2.3%, which was lower than a 2.7% rise in August. The energy index (USO) reported a much lower 4.8% rise in the 12-month period ended in September compared to a 10.2% rise in the 12 months ended in August. The index for rent also grew at a slower pace in September compared to August.

The core CPI, which excludes the volatile food and energy components, rose 2.2% in the 12 months through September, which is the same as August.

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The market’s focus on inflation

The markets (SPY) (DIA) have placed a huge importance on inflation (TIP) figures in 2018 since inflation is one of the most important deciding factors when it comes to the Fed’s path for future interest rate (TLT) hikes. The bond markets and stock markets have been in a sell-off mode for the last few days due to fears of higher interest rates. While September’s CPI is lower than expected, it’s not low enough to deter the Fed from its gradual rate hike plan.

Markets are slightly relieved

While the US equity markets were down as trading opened today, the losses weren’t as bad as anticipated since interest rate hike fears had subsided a bit. The S&P 500 Index (SPY) and the Dow Jones Industrial Average (DIA) were trading with losses of 0.19% and 0.15%, respectively. The Nasdaq Composite Index (QQQ), on the other hand, was trading 0.02% higher.

Gold (GLD), which is very sensitive to interest rates, rose 1.6% due to safe-haven demand and lower inflation data.

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