Fairly Boring CPI Data and Underwhelming Bond Market Response

This is the catch when it comes to economic data with high potential to cause a big reaction in bonds: the key word is "potential."  It takes a big beat or miss to cause the big reaction and today's CPI has neither.  As such, bonds have rapidly vacillated between relief and resignation on a micro scale.  While it may not be the resounding victory bond bulls were hoping for, it still fits the big picture narrative of a longer-term victory.  It also could have been a lot worse.

As for the data itself, the details are encouraging when we look beyond the broader measures.  For instance, Core CPI excluding shelter continues to trend lower and is now in negative territory, month-over-month:

The only hesitation in getting too excited about this data is that the shelter/housing component of CPI is likely to remain a drag on the disinflationary trend.  In the 70s and 80s, it took a much bigger spike in housing costs to result in the sort of price contraction that would truly benefit housing costs.  And even then, price declines never lasted for more than a few months.  In the current case, we may need to see rates fall BEFORE inventory thaws enough for prices to follow suit.

All this having been said, even with housing costs failing to improve much, core inflation is where it needs to be.  Now it just needs to stay there long enough to convince the Fed it isn't a head fake.