Consumer Inflation Remains Tame

Stocks are much stronger this morning, as the equity recovery continues to strengthen. This is taking away from money that could otherwise be flowing into the bond market. However, it again seems to be heavily a technical move. Further, with recent volatility much higher than normal, we could see stocks reverse and move lower in the days to come.

Consumer inflation came in tamer than the market expected, according to the Consumer Price Index (CPI) report. It showed that the Headline number increased by 0.2% in the month of April, which was shy of the 0.3% the market anticipated. On a year over year basis, the number increased from 2.4%, up to 2.5%. When stripping out food and energy prices, the monthly increase was 0.1%, just shy of the 0.2% expected. The year over year number remained constant at 2.1%, which was lower than the 2.2%,expected.

Overall, we must consider that both figures are above the Fed’s target rate of 2%.  This means the Fed will still likely raise interest rates when they meet next in June.  The long end of interest rates could move higher to maintain a reasonable spread between the short and long markets.

We will maintain our locking bias.