The idea that we might be headed toward a “softish landing” was probably the great victim of the April report on the Consumer Price Index (CPI). …
The idea that we might be headed toward a “softish landing” was probably the great victim of the April report on the Consumer Price Index (CPI). Consumer prices were up another 0.3 percent in April for a higher than expected 8.3 percent annual gain. The official consensus had inflation slowing to a 0.2 percent monthly gain and 8.1 percent over the previous 12 months. But many analysts, including those at Bank of America, were forecasting a 7.9 percent year-over-year gain, and there was talk that an inflation report that began with a seven-handle could spark a major stock rally. Sure enough, stock futures showed the market was preparing for a substantial jump prior to the report’s release at 8:30 Wednesday morning. The theory ran something like this: If inflation had already dropped 50 or 60 basis points in April, after the Fed had hiked just 25-basis points at the end of March, then the central bank would not have to squeeze financial conditions too tight to restore something like price stability. Looser financial conditions would be good for stocks, especially the high-flying growth stocks that had led the market up in the previous two years.
