The CPI Numbers: Wall Street breathes brief sigh of relief

The CPI numbers for February came in this morning. Total CPI came in at 0.4%, slightly exceeding the estimate of 0.3%, but core CPI came in on target at 0.2%. After yesterday's PPI numbers, especially the core number, came in much stronger than expected, Wall Street was very concerned that the CPI numbers would support this inflationary trend. The equity markets were relieved that the CPI numbers were not higher.

The unemployment numbers yesterday showed that the economy is stronger than most people had been expecting. This almost eliminates the possibility of a rate cut in the near future unless an international crisis develops or the sub-prime meltdown spreads to the rest of the economy. Both are possible but not likely.

However, the PPI and CPI data raises the concern that inflation may be rearing its ugly head again. Until additional data is available to clarify the situation, the market will continue to remain volatile. The testimony from the upcoming FOMC meeting next week will be crucial. I believe that Chairman Bernanke and the Fed will continue their current position of doing nothing.

The CPI and other data provide ample support for this position. The rise in gas and food prices is largely the result of late winter coldness. Eventually, this will end. Until then, the markets may be in for some near term volatility.

Doug Roberts is the Founder and Chief Investment Strategist for FollowtheFed.com, an independent research firm focusing on investment strategies using the Federal Reserve's impact on the stock prices. He previously held executive positions at Morgan Stanley Group and Sanford C. Bernstein & Co.