The Department of Labor reported that CPI in October rose 0.4% month over month and 7.7% year over year. The consensus estimate was 0.5% for the month-over-month rise and 7.9% for the year-over-year gain. Core CPI (excluding volatile food and energy items) increased 0.3% month over month and 6.3% year over year. The consensus estimate was of a rise of 0.5% month over month and 6.5% year over year.
The decline in CPI and core CPI may be marginal but peak inflation seems behind us. In fact, economic indicators like a tepid housing sector, declining commodity prices (except food and energy), growing accumulation of inventories on the part of manufacturers and retailers, gradual slowdown of the ISM manufacturing PMI and a decline in the job openings rate were pointing to the cooling down of the U.S. economy.
Consequently, the three major stock indices — the Dow, the S&P 500 and the Nasdaq Composite — rallied 3.7%, 5.5% and 7.4%, respectively, marking their best single-day performance in more than 30 months. The small-cap benchmark — the Russell 2000 — also surged 6.1%.