For bond traders, this week will be highlighted by Wednesday’s release of the Consumer Price Index (CPI). With unemployment at record low levels and trade pressures pushing prices higher, the potential exists for rising inflation, however, experts are mixed on its future path. Countering these upward pressures are the recent significant decline in oil prices, the declining breakeven inflation rate and a Federal Reserve (Fed) that seems intent on continuing to raise interest rates. With these counterbalancing forces at play, the attention on actual inflation measures will be heightened.
Analysts anticipate the CPI will increase by 0.3% in October for an annual rate of 2.5%. The CPI, like most inflation measures, appears to indicate the Fed has achieved its goal of stable prices at approximately 2%. My expectation is that the potential exists for a higher inflation reading from the CPI based on pressures associated with trade tariffs. As a result, continued pressure on interest rates will likely keep stock price gains muted.
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