These data undermine the hope that the peak of inflation is over. As we can see, prices continue to accelerate, now at the expense of volatile energy and food prices and the cost of the core.
In such circumstances, it is logical to expect the Fed to tighten its rhetoric and hint at an imminent withdrawal of stimulus, as inaction by the regulator undermines confidence in it.
The market’s speculative reflex to inflation data is to buy the dollar and put pressure on equities in anticipation of the unwinding of stimulus and a reassessment of expectations of a rate hike. However, longer-term investors should wait for comments from the Fed. The reassurance from Powell and Co on the temporary nature of inflation promises to deal a blow to the dollar as markets will return to pricing in high inflation expectations and negative real yields.