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Price hikes are broad-based, but Wall St. sees peak near

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The July consumer inflation report today is terrible, but stocks are rallying and long-term Treasury bond yields are down modestly.

Wall Street, as usual, is looking ahead, not behind. The markets want to believe that inflation soon will be receding, thanks in part to falling energy prices.

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The consumer price index jumped 0.8% last month from June, bringing the year-over-year rise in prices to 5.6%, the government reported. The core inflation rate -- prices excluding food and energy -- was up 0.3%, for a year-over-year rise of 2.5%.

Bad numbers? No question. And price increases apart from food and energy were widespread, suggesting that more companies were trying to pass through their higher costs to consumers.

Apparel prices jumped 1.2% for the month, for example, compared with a tiny 0.1% rise in June. Going out to eat cost you 0.6% more, compared with a 0.5% rise in June. Household furnishings were up 0.4% after no increase the previous month. Recreation costs jumped 0.4% after inching up 0.1% in June.

‘High headline inflation thus seems to be seeping into the broad price stream,’ said Michael Darda, economist at investment firm MKM Partners, in a note today.

But the plunge in commodity prices over the last month, led by oil, should ease inflation pressures between now and the end of the year -- or so investors hope.

‘The worst news on headline inflation may soon be behind us,’ Darda says.

If not, the risk is that the Federal Reserve will have to start tightening credit to show it’s serious about quashing inflation. If 5.6% annualized inflation is the new norm, Treasury bond yields are a very bad joke: The yield on the 30-year T-bond now is 4.51%, a full 1.1 percentage points below the inflation rate.

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It’s helping stocks and bonds that oil today has resumed its slide, after rebounding a bit on Tuesday. Oil futures in New York were down $2.81 to $113.19 a barrel about 10:15 a.m. PDT.

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