Consumer Price Index comes in way lower that the 8% expectations. Way too low at 7.7% which is akin to a collapse in inflation, this will evoke the controversy of the CPI to be flawed in accuracy. Market juiced up on the news, short covering and 6% rally via the S&p 500. oil remains bid over $85.

Chart 1

Chart 2

Chart 3

Markets have roared back to life after U.S. Consumer Price Index came in lower than expectations, at an overall 7.7% with Wall Street analysts calling for an 8% rise.   Yet, the CPI is a notoriously a bad indicator, particularly when inflation has become sticky and imbedded into an economy.  When, what is known as so called volatile components energy and food, are removed from the core CPI, it looks like, as noted with Bureau of Labor Statistics Chart 1 above, a collapse in inflation.  Except energy and food have become less volatile and more directive to its cause and effect on inflation, the chart itself shows energy and food spiking.  The other more controversial  issue with the current CPI methodology, is that it mostly tracks consumer costs of living (which is too broad of a measure) as oppose to directly measuring costs of goods, which are clearly going up, not down.  For more inflation relation to the CPI controversy, please refer to this link:   https://www.investopedia.com/articles/07/consumerpriceindex.asp 

Regardless if the CPI figures are manipulated to show inflation less than so, one has to be careful in assuming that there is a direct reasoning or conspiracy of the U.S. government in showing that they are containing inflation any more less as political populism, even if the statistic set of numbers have more fudge then not.   The market is blind to greed and will trade accordingly regardless, except the truth be known on main 'street', which will be your grocery bills, that ain't coming down any time soon, nor is the pump price i.e. oil and energy costs.  

Chart 2 above shows the S&P 500 above 5% on the futures and went parabolic to 7% (non futures) on the low CPI number, this was of course HFTs, short covering and block trades that pushed the index higher.  Interestingly the index now sits slightly above the July 27th Powell 'Put' at 3968.

Chart 3 shows the oil price and the U.S. Dollar (futures) bar chart with the overlay of the DXY (USD weighted index).  If there is a pause in the Federal Reserve interest rate or a pivot and the USD collapses to 105 (DXY) and 35 (USD futures) oil may climb back over $100 a barrel.  Refer to the horizontal purple line dated July 29th.

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