Inflation Data OK . . . For Now

The Consumer Price Index data just released this morning offers some additional good news on the inflation/interest rate front.  Core CPI (excluding food and energy) rose 0.2% a bit less than was forecast while the overall CPI rose 0.4%, in line with expectations.  Other data out today on housing and industrial production painted a picture of slowing growth.  Indeed, July housing starts fell a bit more than expected while building permits declined sharply.  Industrial production rose 0.4% in July, a bit less than expected, indicating continued growth in the coming months but at perhaps at a slower rate.

Our take?  These reports certainly bolster the favorable inflation news from yesterday and raise the likelihood that inflation and interest rates have plateaued. While this is good news for investors, we're not out of the woods yet.  Along with the producer and consumer price indexes, we'll be watching the employment cost index and productivity numbers to give us a better feel on core inflation trend.  And we'll be watching the slowing economy's impact on corporate earnings in the coming months.   Falling inflation and rates are certainly positive for stock valuations.  But if earnings start to fall, it will be tough for stocks to make headway.   Stay tuned. . .