Markets continue their gains after Consumer price Index in the US increase 0.6%, the same amount as the previous month. The market expectation was of 0.5%. There hasn’t been a negative reaction, wall Street is currently 56 points higher as the increase was mainly due to higher gasoline prices.
Markets follow closely the CPI because it is an important inflation indicator, an increase in the overall prices of goods and services will have an influence in the interest rates. Banks and lenders will have to adjust how much interest they charge to be able to recoup the purchasing power on the money that the have lent.
Market usually will fall if the CPI increase by large number and will rally if the the CPI is negative or small. Low inflation will keep interest rates low. Typically low interest rates is favorable for business investment.