Nothing new here in a way. The Personal Consumption Expenditure index, the inflation measure preferred by the Federal Reserve, jumped to an annualized 5.8% rate in December. That confirms the message from the 7% annualized increase in the Consumer Price Index reported earlier for December. The increase was the highest for the PCE index since 981. The December jump in the CPI was the largest since 1982.
Either way you measure it, inflation is running at levels that the signaled interest rate increases in March just about inevitable.
The core PCE, which omits volatile food and energy prices, rose by 0.5% in December from November for an annualized core rate of 4.9%. That’s the highest level for Core PCE since 1982.
Stocks initially fell on the inflation numbers–even though they were simply confirmation of earlier date. At 10:42 a.m. New York time the Standard & Poor’s 500 was down 0.44%.
But as the day wore on, investors rethought that reaction–or perhaps simply decided that after a week of selling they didn’t want to go into the weekend quite so bearish.
At the close the S&P 500 was up 2.44% and the Dow Jones Industrial Average was ahead 1.66%. The tech-heavy NASDAQ Composite and NASDAQ 100 led the advance with gains of 3.13% and 3.22%, respectively. Even the small cap Russell 2000, which had hung around in the red the longest of the major indexes, ended the day ahead 0.73%.
The CBOE S&P 500 Volatility Index (VIX), the “fear index,” closed down 9.48% to 27.68 as investors and traders decided they didn’t need to pay up for downside hedges.
