There seems to be a lot of misconceptions about inflation especially amongst inexperienced traders. After seeing posts like “illogical market thinks 7.1% is good” or “”7.1% inflation is still too high”, I am convinced people don't understand or even read the reports and are just reading articles citing the YoY headline inflation stat.
Looking at YoY inflation is misleading, I will give you an example. Imagine inflation jumped by 7% MoM from January to February of 2023. Now imagine prices decline by 0.1% each month until February of 2024. No economist in 2024 would say that inflation is a problem. To the contrary, they would say we are experiencing deflation.
However, in this example YoY inflation in February of 2024 would read almost 6%. You would draw the wrong conclusion by looking at surface level statistics and say we are experiencing high inflation.
A more accurate measure is looking at MoM inflation or at least annualizing the last couple months of MoM inflation data.
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