Barry Ritholtz has been on this theme for some time, but nails it today.
So let me make sure I understand this: U.S. consumer prices rose at the fastest pace in 25 years, and that is somehow a positive for the economy and/or the markets?
Inflation however measured, is increasing at an rapid rate. Oil (and its derivatives) have had a large impact on inflation, but that is not the only factor. Barry points out rapid increases in service costs and wages as well.
Despite this market-derived expectations for inflation have not really budged. macroblog points out that the Fed’s series of rate increases has had the effect of keeping these expectations in check.
Note the relative stability of expected inflation over the period since the FOMC began raising the federal funds rate target. That says to me that these rate changes have been the necessary adjustments — at least the adjustments perceived to be necessary — to keep inflation contained to the neighborhood of 2-1/2%.
The US economy has not had to deal with rapidly rising inflationary expectations for some time. As James Picerno at The Capital Spectator notes:
the fact remains that inflation’s at a 25-year-high in the United States. Some might see that as a sign. In an earlier time, such news would suggest an obvious response. No more. This is the age of financially correct speaking (and thinking?). The question before the house: What’s it going to cost us in the long run?
The question is how long a global oversupply of capital can hold back a significant increase in long term US interest rates?