Today's CPI report suggests that inflation is continuing to cool. That's not a new development so the financial markets barely reacted. Needless to say, if the report suggested that inflation wasn't moderating, both bond and stock prices would have tanked. We are expecting a weak retail sales report tomorrow, which should be greeted favorably by both.
We attribute much of the decline in the inflation rate since last summer to the abating of the many inflationary shocks attributable to the pandemic. Supply chain disruptions are no longer a problem. The boom in the demand for goods following the lockdowns has turned into a bust forcing retailers to cut the prices of their merchandise to clear unintended inventories. Services inflation has been stickier, but it should moderate significantly in coming months reflecting lower rent and wage inflation rates.