Is a low or high CPI better? In November, inflation sharply declined, and the global markets reacted with a "mixed bag" of reactions.

Thursday’s US Consumer Price Index (CPI) data for November delivered surprising figures: the overall CPI increased by 2.7% year-over-year, hitting the lowest level since early 2021, well below market expectations of 3.1%. Excluding volatile food and energy prices, core CPI was only 2.7%, also below the anticipated 3% growth. At first glance, this seems to signal a victory in the fight against inflation, but market reactions are far more complex than expected.

Overcooling of Inflation Data Sparks Doubts: The Truth Behind CPI Levels

The question of whether “high CPI is good or low CPI is good” appears simple but requires in-depth exploration. Low inflation indeed implies purchasing power preservation and stable living costs, which theoretically benefits consumers. However, if inflation drops too quickly, it often signals weak economic growth.

Data from the US Bureau of Labor Statistics showed an “unusual stagnation”—housing prices remained essentially flat over two months, a component with the largest weight in CPI suddenly losing upward momentum. Capital Economics economist Ashworth described this phenomenon as “very abnormal,” noting that the rise in rent and other more persistent service prices has suddenly halted, which is rare outside recession periods.

Morgan Stanley economist Gapen pointed out that the unexpected decline in data may reflect weakness in the goods and services markets, but he believes part of the reason stems from methodological issues—BLS may be using outdated price data for certain categories, effectively assuming zero inflation. His conclusion is that November’s data was volatile and cannot be used to draw definitive inflation conclusions. In other words, the authenticity of this data remains to be verified.

Why Does the Market Still Welcome Low Inflation? Expectations of Fed Rate Cuts Boost Stocks

Despite concerns over the inflation data, investors remain optimistic. On Thursday, US stocks rallied across the board—major indices all rose: Dow +0.47%, S&P 500 +1.16%, Nasdaq 100 +1.81%. The VIX fear index fell 4.37%, 2-year Treasury yields dropped to 3.43%, a two-month low, and 10-year yields retreated to 4.12%.

Lower inflation directly fuels expectations of rate cuts. The market has heavily priced in the possibility of further Fed rate reductions, providing clear support for equities. Notably, memory chip producer Micron Technology surged over 10%, Amazon rose 2.5% to be the best performer among Dow components, while Nvidia and Tesla gained 1.9% and 3.5%, respectively.

Initial jobless claims data also aligned with this sentiment—week ending December 13, initial claims fell by 13,000 to 224,000, slightly below the expected 225,000. The stability in the labor market further reinforces market confidence in a “soft landing.”

ECB Pauses, Bank of England Completes “Comfortable” Rate Cuts?

The cooling of inflation affects not only US stocks but also the global monetary policy landscape. The European Central Bank (ECB) held rates steady for the fourth consecutive meeting, maintaining deposit rates at 2%. According to sources cited by foreign media, based on the latest economic growth and inflation outlooks, ECB officials expect the rate hike cycle to be likely over—after eight rate cuts starting from a 4% peak, barring major shocks, deposit rates should stay at 2%.

The Bank of England (BoE) announced a 0.25% rate cut after its Thursday meeting, lowering the rate to 3.75% with a 5-4 vote. Governor Bailey shifted to support rate cuts, noting that rates are on a gradual downward trajectory, and each cut makes decision-making harder, but the decline in inflation has further solidified, leaving room for easing. Bailey hinted that as the central bank approaches the “neutral rate” that stabilizes inflation, the decision to cut or hold will become more delicate, and he expects the pace of rate reductions to slow at some point.

European stocks responded positively—UK +0.65%, France +0.8%, Germany DAX +1%.

Divergence in Cryptocurrency and Commodity Markets

In a low-inflation environment, cryptocurrencies and traditional commodities have shown divergent performance. Bitcoin fell 0.94% in 24 hours to $85,406, Ethereum declined 0.25% to $2,825. In contrast, gold dropped 0.15% to $4,332.5 per ounce, WTI crude oil fell 1.48% to $55.9 per barrel.

BHP CEO Henry revealed in an interview with CNBC that copper is widely used in semiconductors, electronics, construction, and military applications, with a market value of $300-400 billion annually. Copper demand is expected to grow 70% by 2050, but supply is increasingly tight—fewer new mines, smaller and lower-quality deposits, difficult to develop quickly. He remains confident that supply shortages will persist into next year and even until 2030. NY copper futures have risen 34% this year; London copper hit a new high last Friday at $11,952 per ton. UBS forecasts copper could reach $13,000 per ton by the end of next year.

Valuation Risks of Tech Stocks: The Biggest Concern for 2026

Deutsche Bank’s global market survey reveals the true investor concern—valuation risk related to AI has become the single biggest threat to market stability in 2026. 57% of respondents believe that a valuation collapse in tech stocks due to waning enthusiasm for AI is the greatest risk next year.

The second major concern is the risk of the new Fed Chair pushing aggressive rate cuts and triggering market turmoil. Followed by worries over a crisis in private capital markets and the possibility of long-term Treasury yields rising beyond expectations.

Regarding investment preferences, about 71% of respondents prefer to allocate retirement funds into other parts of the US stock market rather than the “Big Seven” tech giants, a preference that has remained stable since July 2024. Looking ahead to 2026, respondents are more cautious about market returns, expecting the Big Seven to deliver an average return of about 7% next year, with the S&P 500 rising nearly 7%, marking the strongest outlook in the past four years.

Mixed Corporate Earnings: Tech Giants in Action

Nike stock plunged nearly 10% after hours to $59.2. Its Q2 revenue was $12.43 billion, up 0.6% YoY, with net profit of $792 million, down 32% YoY. Gross margin declined from 43.6% to 40.6%.

In contrast, Meta is developing a new image and video AI model codenamed Mango, alongside next-generation large language models, expected to launch in the first half of 2026. Oracle and OpenAI made breakthroughs in Michigan data center projects—regulators approved DTE Energy to support the development of large data centers with a capacity of 1.4 GW. The total planned capacity across the US exceeds 8 GW, with over $450 billion expected in investments over the next three years.

The Final Answer: Is Low or High CPI Better? It Depends on Whether the Market Truly Bottomed

From Thursday’s market reaction, investors have made their interpretation clear—low inflation equals room for rate cuts, and room for rate cuts equals stock market opportunities. But economists’ cautious stance reminds us that the authenticity of this inflation data still needs verification. If December data rebounds, markets may face a reassessment of rate cut expectations.

In short, whether high or low CPI is better is not an absolute answer. Moderate inflation (around 2-3%) is generally considered healthiest—neither eroding purchasing power nor overheating the economy to trigger aggressive rate hikes. When inflation drops sharply, it may instead signal economic slowdown and rising corporate profit pressures—this is the real picture behind Nike’s earnings. The key going forward is whether December data will confirm the “unusual stagnation” of November or if markets will face a reversal of rate cut expectations.