After a carefully awaited US report showed inflation moderating in July, global markets mainly gained Wednesday, reaching new highs in certain cases.
The Dow and S&P 500 finished at all-time highs, matching Frankfurt’s DAX, and Paris finished near an all-time high.
According to the July US inflation report, consumer costs for gasoline and food rose considerably. When volatile items were excluded from the calculation, the core CPI rose by only 0.3 percent seasonally adjusted, or one-third of the rate seen in June.
The slowing of price increases “feeds into the ‘peak inflation’ story,” according to Briefing.com analyst Patrick O’Hare, who added that the research suggested inflation might still remain high.
After a recent run of pressure driven by the potential of central banks tightening their monetary policies, as well as the rapidly spreading Delta strain of the coronavirus, equities have had a fairly good week.
Later this month, world central bankers will gather in Jackson Hole, Wyoming, for an annual meeting, where Federal Reserve Chair Jerome Powell will speak.
A persistent concern ahead of Wednesday’s consumer price report was that increasing inflation would put pressure on the Fed to accelerate its plan to tighten monetary policy, perhaps causing an economic shock.
However, Wednesday’s report was interpreted as supporting the Fed’s and other central banks’ assertions that inflationary pressures are the result of short-term supply chain concerns rather than a structural shift in the economy.
“Easing pricing pressures, a solid recovery in the economy, and a quickly strengthening labor market will be music to the ears of Fed policymakers,” said Craig Erlam, senior market analyst at OANDA.
“While it may not change the start date or even the pace of tapering given their assessment that inflation was transitory, it will provide them with more comfort and allow them to let off the gas if necessary.”
Oil prices surged in other markets, despite a White House plea for OPEC+ oil producers (the Organization of Petroleum Exporting Countries and allies) to increase output to satisfy rising demand as the global economy rebounds from Covid-19.
Southwest Airlines rose 1.4 percent among individual firms, as investors shrugged off a recent slowdown in bookings and an increase in cancellations, possibly due to the recent rise of Covid-19 infections.