After the market yoyoed like a volatile, drunken sailor for much of 2022 and 2023 after every monthly CPI print, focus gradually shifted away from the inflation number and to unemployment because the Fed, conventional wisdom claimed, had inflation under control and so the only gating factor for Fed policy was slack or tightness in the labor market. But now that the labor market has clearly slowed down substantially even as inflation refuses to make the trek from 3% to 2%, and in fact is started to pick up again, attention is once again shifting to the CPI number, so much so that according to Citi, S&P option straddles are pricing in a 1,1% swing in the equity index tomorrow, the largest implied move ahead of a CPI print since the regional bank turmoil of 2023.
In other words, suddenly the CPI matters a lot again.
Making matters worse, today's softer than expected PPI print did not help much. Yes, on the surface, the PPI numbers all came in below estimates for both headline and core, but after an initial burst of euphoria, stocks promptly reversed direction as traders dug between the lines and found that details for PCE were mapping into something stronger (as a result, Goldman raised its Dec Core PCE estimates, now seeing core PCE for Dec at 22bps vs. 18bps prior to the PPI data).
