Significant easing of inflation has sparked market disagreements: Is a high or low CPI better? US stocks, gold, and cryptocurrencies are fluctuating with gains and losses.

On Thursday, the financial markets staged a subtle “ice and fire” scene — the US November Consumer Price Index (CPI) unexpectedly dropped sharply to a 2.7% annual growth rate, hitting the lowest level since early 2021, with core CPI falling to 2.6%, both below market expectations. This data should have sparked a stock market rally, but in reality, gold prices retreated after rising, cryptocurrencies saw slight declines, and market participants were left pondering “Is a rate cut good or bad?”

Inflation Data Shows Anomalies, Economists Question the Numbers

November data from the US Bureau of Labor Statistics showed overall CPI up 2.7% annually (expected 3.1%), and core CPI up 2.6% annually (expected 3%). At first glance, cooling inflation seems positive — after all, the market has long been troubled by high prices. However, several economists immediately raised doubts, suggesting that hidden behind this data are some abnormal signals.

Paul Ashworth, Chief Economist at Capital Economics, pointed out that housing costs, the most important component of CPI, showed almost no change over two months. This sudden stagnation is highly unusual — especially for rigid service items like rent, where growth suddenly halts, which is rare outside recession periods. He said we need to wait for December data to determine whether this is a statistical anomaly or if inflation has indeed fallen significantly.

Further analysis by Michael Gapen, an economist at Morgan Stanley, indicated that the decline reflects weakness in goods and services markets, but may also involve methodological biases — perhaps the Bureau of Labor Statistics used outdated price data in some categories, effectively assuming zero inflation. This controversy points to a fundamental question: Is high CPI good or low CPI better?

Is High or Low CPI Better? The Market’s Dilemma

On the surface, low CPI is good — slower consumer price increases mean purchasing power is protected, and living costs decrease. This aligns with the goal of central banks worldwide: to keep inflation around 2% in a moderate range.

But market dynamics are more complex. The abnormal drop in CPI has triggered a subtle psychological reversal: if inflation truly cools significantly, the Federal Reserve might have room to cut rates further. This should be positive for stocks, but market reactions have been cautious. The VIX fear index fell 4.37%, indicating reduced risk sentiment, yet gold surged to $4,332.5 per ounce before retreating, and cryptocurrencies also declined slightly — Bitcoin down 0.94% to $85,406, Ethereum down 0.25% to $2,825.

This reflects a real dilemma: markets both hope for lower inflation to justify rate cuts, and worry that too rapid a decline could signal economic recession. In other words, complete low inflation may not be entirely good — if inflation falls too fast and too hard, it could indicate weak demand and diminished economic vitality.

Rate Cut Cycle Nears End, Central Banks Face Policy Shift

Following the November CPI data, expectations for future rate cuts have shifted direction. The 2-year US Treasury yield briefly fell to 3.43%, a two-month low; the 10-year yield declined to 4.12%, down 3 basis points. These trends seem to open the door for rate cuts.

However, the European Central Bank’s latest stance serves as a warning. The ECB maintained interest rates unchanged for the fourth consecutive meeting, with deposit rates at 2%. More importantly, sources indicate ECB officials believe the rate cut cycle is likely over — after eight rate reductions starting from a peak of 4%, unless a major economic shock occurs, rates should stay at current levels.

The Bank of England has adopted a more cautious approach. It announced a 25 basis point rate cut to 3.75% on Thursday, the lowest since February 2023. BoE Governor Bailey said that each rate decision has become more difficult, but the downward inflation trend is established, and there is still room for moderate easing. He hinted that the pace of rate cuts might slow at some point, implying limited further easing space.

US Stocks Rise Across the Board, Micron Leads Popular Stocks

Despite differing interpretations of inflation data, the US stock market responded positively. All three major indices rose: Dow up 0.47%, S&P 500 up 1.16%, Nasdaq up 1.81% to 23,006 points.

Among popular stocks, memory chip maker Micron (Micron) performed notably, surging over 10%, driven by optimistic guidance on earnings prospects. Other tech giants also performed well: Amazon rose 2.5%, the strongest performer on the Dow; Nvidia and Tesla increased 1.9% and 3.5%, respectively; Oracle rebounded 0.8%, and Apple recovered steadily after volatility.

European markets also showed resilience: Germany’s DAX 30 up 1%, France’s CAC 40 up 0.8%, UK’s FTSE 100 up 0.65%.

Contrasting Trends in Commodities and Forex Markets

In commodities, gold remains conflicted amid easing inflation expectations. Prices dipped 0.15% near $4,332.5 per ounce, indicating market skepticism about future demand. Oil, however, declined more sharply, with WTI down 1.48% to $55.9 per barrel, reflecting concerns over global economic growth.

Forex markets remained relatively stable: the US dollar index edged up 0.02% to 98.4, USD/JPY fell 0.08%, EUR/USD declined 0.14%.

In Hong Kong stocks, the Hang Seng Index futures closed at 25,675 points, up 161 points, slightly stronger than the previous trading day’s 25,498 points.

Market Risks and Investor Attitudes Shift for 2026

Deutsche Bank’s latest survey shows that valuation risks related to artificial intelligence have become the biggest single threat to market stability in 2026, with 57% of respondents worried that tech stock valuations could plummet as the AI hype cools. The second concern is the risk of market volatility caused by the new Fed Chair’s aggressive rate cuts.

Notably, about 71% of investors prefer to allocate funds outside the “Big Seven” US stocks, a preference stable since July 2024, reflecting cautiousness toward overvalued tech giants.

Regarding return expectations for 2026, market sentiment remains conservative. Investors expect the Big Seven to deliver an average return of about 7%, with the S&P 500’s average gain close to 7%. While this is the most optimistic forecast in four years, the absolute level remains modest.

Corporate Developments: Micron Optimistic, Nike Under Pressure, Meta and Oracle Advance AI Strategies

Micron publicly expressed optimism about earnings prospects for the first time, with its stock soaring, reflecting market expectations of a chip cycle recovery.

In contrast, Nike plunged nearly 10% after hours to $59.20, with Q2 net profit down 32% YoY to $792 million, and gross margin falling from 43.6% last year to 40.6%, indicating significant operational pressure.

In AI, Meta is secretly developing a new image and video AI model codenamed Mango, scheduled for release in the first half of 2026. Simultaneously, they are working on the next-generation large language model. Oracle, meanwhile, received approval to power a large data center in Michigan, with a capacity of 1.4 GW. The two companies’ planned collaborations across the US total over 8 GW, with over $45 billion in investments expected over the next three years.

Conclusion: Seeking the Balance Between Inflation and Growth

This week’s market movements essentially reflect the fundamental dilemma facing the global economy: Is high CPI good or bad, depending on what drives it? If high inflation stems from strong demand and overheating, then low inflation is positive; but if inflation drops rapidly due to recession and weak demand, then low CPI signals bad news.

Currently, central banks are searching for this balance — aiming to control inflation while maintaining economic vitality. The European Central Bank’s pause on rate cuts, the Bank of England’s slowing pace, and the Federal Reserve’s cautious stance suggest a subtle shift in global monetary policy. It will take time for markets to fully understand this shift, and December’s data will provide clearer answers.