Wall Street up again on the back of slower increase in consumer prices

US stocks climbed further on Tuesday after the new inflation data showed that the prices rose less than expected in November – another sign that the runaway inflation is beginning to loosen up.

The Dow Jones Industrial Average climbed 103.60 points (0.3 percent) to 34,108.64, S&P 500 by 0.73 percent to 4,019.65 and Nasdaq Composite by 1.01% to 11,256.81.

During the session, the Dow at one time was up as much as 707.24 points (2.08 percent) The S&P 500 reached the daily peak of 2.77 percent while the Nasdaq gained 3.84 percent.

Investors are now anticipating the Federal Reserve’s next rate-hiking decision at the conclusion of its two-day policy meeting on Wednesday. Traders are largely pricing in a 50-basis point increase, a slight decline from the previous four hikes.

“While the inputs of inflation coming into that Fed meeting are modestly better, we still don’t know for sure if the Fed’s going to raise by 50 basis points, if they’re going to raise their terminal rate. So, we have quickly shifted gears into a mode of ‘wait and see’ for the Fed meeting tomorrow,” said Art Hogan, chief market strategist at B Riley Wealth.

The 10-year Treasury yield slipped after the Consumer Price Index (CPI) report and touched a low of 3.421 percent. Energy stocks led the gains, with shares of Chevron the leading outperformer in the Dow.

Tech stocks that have been hit the hardest from rising inflation and rates in 2022, also rose. Shares of Meta and Google-parent Alphabet were up 4.7 percent and about 2.5 percent respectively.

Has inflation peaked?

The CPI, which measures a wide basket of goods and services, rose just 0.1 percent from the previous month, and increased 7.1% from a year ago, the Labor Department reported Tuesday.

It comes as economists surveyed by Dow Jones had been expecting a 0.3% monthly increase and a 7.3% 12-month rate.

The increase from a year ago, while well above the Federal Reserve’s 2 percent target for a healthy inflation level, was tied for the lowest since November 2021.

Excluding volatile food and energy prices, so-called core CPI rose 0.2 percent on the month and 6 percent on an annual basis, compared with respective estimates of 0.3 percent and 6.1 percent.

Stocks initially roared higher following the report, with futures tied to the Dow Jones Industrial Average up more than 700 points initially before easing a bit.

Falling energy prices helped keep inflation at bay. The energy index declined 1.6 percent for the month, due in part to a 2 percent decrease in gasoline. Food prices, however, rose 0.5 percent and were up 10.6 percent from a year ago. Even with its monthly decline, the energy index was higher by 13.1 percent from November 2021.

Shelter costs, which make up about one-third of CPI weighting, continued to escalate, rising 0.6 percent on the month and now up 7.1 percent on an annual basis.

The easing of inflation pressures helped give workers a lift after months of seeing wage increases fall well short of inflation. Real average hourly earnings rose 0.5 percent for the month, though they were still down 1.9 percent from a year ago.

Inflation spiked in spring 2021, the result of converging factors that took price increases to their highest levels since the stagflation days of the early 1980s. Among the main aggravating circumstances were a supply and demand imbalance brought on by the pandemic, Russia’s invasion of Ukraine and the impact on energy prices, and trillions of dollars in fiscal and monetary stimulus that sent an abundance of money chasing too few goods that were caught up in supply chain problems.

Used vehicle prices, which had been a major contributor to the initial inflation burst, fell 2.9 percent for the month and are now down 3.3 percent from a year ago. As recently as February, the used cars and trucks index was up more than 40% on an annual basis, the result of higher demand as a microchip shortage caused a backlog in new car production.

Similarly, medical care services costs also declined 0.7 percent on a monthly basis and were up 4.4 percent annually.

Headline CPI peaked around 9% in June 2022 and has been on a slow but steady decline since.

After spending months dismissing the inflation surge as “transitory,” Federal Reserve officials began raising interest rates in March. The central bank has boosted its short-term borrowing rate six times in all, pushing the benchmark up to a targeted range of 3.75%-4%.

Fed Chairman Jerome Powell said recently that an important component in determining future monetary policy moves will be looking at services inflation excluding shelter costs. That gauge was little changed in November but is up nearly 7.3% from a year ago.

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