What if Low Oil Prices Hadn’t Saved the Day? How aggressive will the Fed be now? … how gasoline saved the CPI … why oil’s disinflationary tailwinds might be dropping … a look at where inflation could go To the casual market observer, Wednesday’s CPI report doesn’t make much sense. Yes, the CPI came in barely higher than estimates, but it was down. Better still, it was down for the second straight month. So, why did the bottom fall out of the market? Here are our technical experts John Jagerson and Wade Hansen of Strategic Trader to explain: The headline inflation number was actually quite reasonable; it showed that inflation for all items had only increased by 0.1% during August – bringing the annualized rate to 8.3%. Falling gasoline prices helped keep this number lower. The surprising news came with the core inflation number (all items excluding food and energy). It showed that prices for items other than gasoline and food had risen by 0.6% during August – bringing the annualized rate to 6.3% (see Fig. 1). Fig. 1 – Consumer Price Index Data (Source: Bureau of Labor Statistics) Wall Street knows the Federal Reserve cares more about the core inflation number than it does about the headline number because the Fed doesn’t think it can have much impact on food and energy prices with its monetary policy.