As of the close in New York on Wednesday, January 12, the Standard & Poor’s 500 was up 0.28%; the Dow Jones Industrial Average had edged higher by 0.11%; and the NASDAQ Composite had climbed 0.23%.
Even though, the Labor Department reported this morning that inflation, measured by the headline Consumer Price Index (CPI) had climbed at a 7% year over year rate in December? That the biggest jump in the annual inflation rate since June 1982.
The stock market logic on this is very clear. The 7% year over year rate was expected by just about everyone. Certainly Federal Reserve chair Jerome Powell knew this number when he appeared yesterday in front of the Senate Banking Committee.
And therefore today’s number just confirmed what the market already believed: That inflation was so hot that the Federal Reserve will begin raising benchmark interest rates at its March 16 meeting.
No surprise. No big shift in stock prices.
To dive a little deeper into the numbers–
The core inflation rate, which excludes volatile food and energy prices (because most people have a choice whether to eat and drive or not) climbed a larger than forecast 0.6% in December from November. The core inflation rate year to year advanced to 5.5%, the highest rate since 1991.
The increase in the headline CPI was led by higher prices of shelter (which makes up about a third of the index) and used cars. Energy costs dropped by 0.4% in December from November. U.S. consumer prices soared last year by the most in nearly four decades, sapping the purchasing power of American families and setting the stage for the Federal Reserve to begin hiking interest rates as soon as March.
Economists are still expecting that Pandemic bottlenecks and supply shortages caused by the tide of Omicron infections will moderate as 2022 advances and that CPI inflation will fall to around 3% during 2022.