Stocks Surge on CPI Data

Posted by Louis Navellier on 5/14/08 11:46 am

U.S. stocks rebounded today after a key consumer prices report revealed that inflation was less than expected in April.  The Consumer Price Index (CPI) rose 0.2% in April, slightly less than the 0.3% rate expected by economists.  And the more important core rate (consumer prices minus food and energy) edged up just 0.1%, half as much as the 0.2% consensus.  CPI Full Report

Overall, the CPI data are good news, but the Fed will not cut rates further, since the core CPI & PCE are still above the Fed’s “comfort zone” of 1%-2% inflation.  The CPI’s year/year core rate was up 2.3% in April; however, the 3-month annualized rate is down to 1.2%.  The big drop-off in the past three months is due to the economic slowdown.  In fact, some believe it’s indicative of a recession even though we haven’t seen official recession numbers yet.

That could change though.  The Q1 GDP data still have to go through two more revisions.  The first estimate was 0.6%, so there’s not much room on the downside to stay above official recession territory.

Moreover, the May CPI headline number is supposed to be bad, largely due to the big run-up in food and energy prices this month.  But, that doesn’t necessarily mean the food and energy prices will get passed through enough to increase the core rate if the overall economy is still slowing.

In the meantime, we’re still underweight consumer stocks in Vantage, All Cap Core, Fundamental ‘A’, Power Dividend, Dynamic MPT, and our other portfolios, too.

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