The Labor Department reported that consumer prices in November rose 7.1% compared to last year and 0.1% compared to last month. These were lower than analysts' consensus expectations of a 7.3% annual increase and a 0.3% monthly increase.

Wall Street had a giddy reaction as stocks furiously rallied and opened as high as 2.5% before giving back the bulk of the gains as traders looked ahead to Wednesday's FOMC meeting. There were two possible factors in the market's sell-the-news reaction to the print.

One is that the number seems to have possibly leaked out earlier as bonds and stocks started to rally prior to the inflation data being released. The other is that the volatility index has been selling off into these releases, while it tends to rise into these numbers. However, this does increase the chance of a 'fade' as the market chooses to focus on the outlook rather than backward-looking data.

Currently, inflation is the biggest wildcard when it comes to predicting the Fed's rate hike plans. This is why there is so much focus on inflation data such as the CPI, PPI, and PCE reports which are giving insight into where inflation stands and clues about its future trajectory. As it stands, we've clearly peaked.

This reading also marked the lowest inflation print since November 2021. The Fed's preferred measure of core CPI is also elevated but cooling as it came in at 0.2% monthly and 6% annually with both below estimates. In hindsight, it's clear that inflation peaked in June with a 9% headline reading.

The gap between the two figures is explained by deflation in energy prices which were down 1.6% for the month. However, this was offset somewhat by food prices which increased by 0.5%, and shelter which was up 0.6%.

There was also relief with used vehicle prices which were down 2.9% for the month and were down 3.3% on an annual basis. The deflation in this sector is due to production increases, while demand has been hit by rising rates and a shaky economic outlook.