Inflation news is a relative indicator, having different impacts to different market conditions. Over the past decade, lagging economy (especially for Europe and Japan) hope to achieve higher inflation as it shows the expansion of economy with more spending.
In a bullish economy, it is natural to have higher inflation, then the inflation news could affect the stock market. The key is to know the limit: 2.5% will be a critical point for US inflation or CPI (Consumer Price Index), interest rate has to catch up more than 2%. US inflation for Jan 2018 is 2.1%, still within the limit. At the same time, US 10 years bond yield over 3% is another critical point. In fact, after breaking 3% critical resistance for US bond yield, bond market may suffer significant correction, resulting in lower bond price with higher bond yield. As long as economy is still healthy, funds may be channeled from bonds to stocks, until next time when the unexpected black swan comes, the funds will be moved back from stocks to bonds. The market is near to the transitional points of bull to bear, stocks to bonds but the signal has not reached the critical level yet.
Inflation News: is it Good News or Bad News? The interpretation has to align with investing strategies. Learn further from Dr Tee on how to leverage on macroeconomy indicators including inflation news.
