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In October the headline Consumer Price Index rose 0.9% from September and 6.2% from October 2020, according to the U.S. Labor Department. The increases exceeded all estimates from economists surveyed by Bloomberg.

Higher prices for energy, shelter, food and vehicles fueled the surge.

Core inflation, which excludes food and energy prices on the grounds that trends in those sectors are more volatile, rose 0.6% from September and at an annual rate of 4.2%. That’s the fastest pace for annual core inflation since 1991.

Some category price increases:

Food up 5.3% from year ago, most since January 2009
Gasoline rose 6.1% from September, biggest gain since March
Electricity costs jumped 1.8%, largest monthly increase since 2014
Fuel oil advanced 12.3% from prior month, most since 2007.

Looking ahead, Bloomberg Economics’ Anna Wong and Andrew Husby said in a note, “those factors and adverse base effects should keep the headline CPI from peaking until January.”

What’s most interesting to me today is the very modest reaction in stock prices. As of noon New York time the Standard & Poor’s 500 was off just 0.21% and the Dow Jones Industrial Average was lower by only 0.15%. The NASDAQ composite had retreated 0.62% and the NASDAQ 100 was down 0.50%. The small cap Russell 2000 had lost just 0.26%.

Normally, you’d expect this kind of surge in inflation to decimate stocks because, the thinking on Wall Street would go, the Federal Reserve would accelerate its taper of bond purchases and move up the start of interest rate increases.

But the markets don’t seem to be afraid of those actions. My opinion is that Wall Street believes that the Fed is constrained by tepid economic growth from moving more aggressively on interest rates.

The yield on the 10-year Treasury was up 10 basis points as of noon to 1.53%. Which might seem like a big increase but the yield is still down 8 basis points over the last month.

Action in the market for hedges too suggests little fear from today’s numbers. The CBOE S&P 500 Volatility Index (VIX), which tracks the prices that investors and traders are willing to pay to hedge risk in the futures market, was down 1.52% at noon New York time, to 17.51.

For more on the inflation picture see last night’s post on soaring producer prices in China.