The US CPI number blew past expectations, but markets did not react within them. The US CPI exploded to 5%, annualised, which was the highest inflation number since 2008. Markets reacted in denial and accepted the Fed and US Treasury argument, that it was a ‘transitory’ number. The orthodox reaction would have been a signal of higher interest rates and an immediate shift to a tapering policy from the Federal Reserve. This was summarily rejected and the US 10 year bond crashed to 1.45%, while equities surged on the news?
The temporary nature of inflation may possibly be true, but this follows last months blow-out number (4.2% p.a.) and follows huge increases in PPI numbers across the globe. The US Dollar retreated, following the lower bond yields, with the EUR trading 1.2170, while the GBP jumped to 1.4175. The ECB Left rates unchanged and assured markets that inflation in the zone would remain well within the target limits.
Commodity currencies were beneficiaries of the weaker reserve, with the NZD regaining 0.7200, while the AUD jumped back to 0.7750. NZ Credit Card spending rose 1.7%, while Australian New Home Sales spiked 15.2%. Japanese PPI blew through expectations, jumping 4.9%, following the global trend. Inflation is here, despite manipulated data readings and the ‘provisional nature argument’ seems very hard to swallow.