It says a great deal about the market’s resilience that after stronger-than-expected US CPI (consumer price index) and weaker-than-expected UK GDP (gross domestic product) prints shares have continued their advance.

Most of the unexpected increase in US inflation came from ‘shelter’ costs, which are a controversial measure as they not only include rent prices but what it would cost a homeowner to rent an equivalent residence if they didn’t own it, which many economists view as something of a nonsense.

What was more alarming was the rise in so-called ‘supercore’ inflation which excludes goods, energy and shelter.

Wages are the single biggest cost for service industries, so the increase in the ‘supercore’ rate of inflation from 3.9% in December to 4.4% last month, just at the point where the Federal Reserve needs prices to come down before it can cut interest rates, is less than helpful.

However, investors know they shouldn’t take one month’s data as the start of a new trend, and they also know the Fed pays more attention to the PCE (personal-consumption expenditure) measure which comes out on 29 February than it does to the CPI.

The market took news of a UK technical recession in its stride, although we would caution that if the economy contracts again in the current quarter and forces the Bank of England to cut rates to stave off a genuine slowdown we doubt investors will be so sanguine – cutting rates because inflation has slowed is one thing, cutting because the economy is nosediving is another thing.

UK retail sales bounced back 3.4% in January after a record 3.3% fall in December with sales volumes higher across all categories except clothing stores led by the supermarkets.

Upcoming releases fourth quarter US GDP number on 28 February and the aforementioned core PCE data which, as flagged, will be closely watched by central bankers and economists alike. 

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