Core CPI Inflation Possibly Start to Cool Down

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If the inflation data shows signs of slowing down, Powell said two weeks ago that slowing down the rate hike makes sense here. However, ISM, PMI, and October factory orders were higher than expected, suggesting inflation is still stubborn. However, the jobless claims are higher than expected, suggesting the labor market is slowing down. The key to watch here is the CPI number. If the CPI number softens, meaning inflation cools down, Fed could slow down the rate hike and boost the stock price.

The upcoming CPI number will be tricky as last Friday's PPI number was higher than expected, with energy and commodity prices higher YoY. Therefore, producers have to pay higher material costs. Similarly, we should see this upcoming CPI haunted by the higher YoY energy and food prices. However, we do know a lot of core CPI components have started to drop:

the used car index and airfares have been dropping significantly

the rent and other housing costs have started to fall

Therefore, the CPI numbers could be similar to the expectation, but we see a larger than 50% chance the core CPI could be lower than expected.

Moreover, Moneypig Trading expects the CPI reported in Jan 2023 and Feb 2023 to see a significant YoY growth slowdown, which could fuel the market upside.

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Disclaimer: not a financial advisor