Gas Prices Kill Inflation

Markets are ripping upward as inflation collapses

BREAKING NEWS

At a moment when investors were expecting inflation to creep back up, the October CPI has sent bull investors into a frenzy of buying. Prices basically did not rise from September to October and energy costs brought inflation down to 3.2% on the year. 

WHAT HAPPENED

The markets were expecting much hotter inflation thanks to persistently high shelter and food costs. Instead, a complete collapse in demand for gasoline drove energy prices down enough to make inflation flat on the month and 3.2% YoY. With the market expecting 3.7% yearly inflation, it's easy to see why the market is surging in response. 

SHELTER IS FINALLY CRACKING

While food inflation slowed a little, Shelter inflation was cut in half month-over-month, which is a huge sign moving forward. Shelter inflation has been stubbornly high all year while every other category in the CPI has managed to come down. Shelter was really the final piece of the puzzle investors wanted to see before being confident that the Fed had truly gotten inflation under control. Of course, a few bad months of energy price rises can bring inflation right back, but core inflation keeps getting more and more under control. This is a great result that increases confidence that we can look forward to the Fed cutting rates in 2024.  

WHY IT MATTERS

With the jobs market as strong as it has been, most analysts have been concerned that inflation was going to stay a lot stickier than this. Of course, this big of an inflation beat could be an outlier and not last, but the markets are excited that the Fed may be able to achieve their 'soft landing' here. Of course, with more retailers reporting earnings this week, we'll also get a better sense of whether the Fed has slowed the economy or pushed too hard and dropped us into a recession. For now, bulls are back in control across all major indexes.