Financial markets appear to have welcomed the latest US inflation data (Reuters)

With the inflation crisis well into its second year, a few words have become entrenched in the investor lexicon. There were predictions of a “transient” problem, later much ridiculed. There were also accurate forecasts about the “early distribution” of interest rates by central banks and, more recently, complaints about the late and “expeditious” way in which the Federal Reserve of USA has addressed the tightening of monetary policy. Attention is now focused on the concept of “false head”: the notion that a rosy set of data suggesting a decline in inflation can fuel a burst of optimism in markets, only for the sad reality of persistent price pressures to be reaffirmed.

At the end of last week, asset prices soared, buoyed by the latest inflation figures from USA. Stocks rose around the world. The Nasdaq, the technological reference index of USA, rose nearly 10% on November 10 and 11, its biggest two-day rise in more than a decade. Currencies as depressed as the pound and the yen also recovered. Economists expected the consumer price index for USA for the month of October it will increase by 0.6% compared to the previous month. Instead, according to figures released on November 10, it rose 0.4%. This is a small difference in the grand scheme of things. In annual terms, this is equivalent to inflation of almost 5%, well above the objective of the Federal Reserve of approximately 2%. But investors were quick to extrapolate to the possibility that maybe — just maybe — inflation’s grip on the US economy was weakening.

The markets are suddenly exuberant: are they right? — Archynewsy

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