There were a few good years in the middle of the financial crisis recovery where inflation data just didn't matter.  Various economic reports could indicate higher or lower inflation, but markets didn't respond.  Older dogs who'd lived through the 70's and 80's were confounded by this new world order.  But just when everyone was beginning to get on the same page with inflation not mattering, now it matters again!

Things are a bit different right now though.  The inflation that matters is the kind that might eventually show up and make the Fed wish they'd raised rates soon enough to keep it stably in check.  Of course it hasn't shown up yet, so the Fed is forced to look for clues that it might show up in the future. 

One of those clues is wage growth.  That wasn't so hot on Friday and markets responded in a major way.  Another clue is consumer spending.  That wasn't so great in this morning's data with zero improvement in 'real consumption.'  Then there are the inflation reports themselves and the inflation-related components.  Among these is the "prices paid" component of the ISM Manufacturing survey.  This came in at 44.0 today versus a median forecast of 49.0--a fairly substantial miss.

Other parts of this morning's economic data painted similar pictures with respect to the economy's ability to support increasing prices.  The market's fastest way to adjust it's take on inflation is via the trading of Treasury Inflation-Protected Securities (or TIPS).  We'll talk more about the finer points of TIPS tomorrow, but for now, all you need to know is that the "TIPS Breakeven" line in the following chart is the market's notion of where inflation is.  The lower the line, the lower inflation is seen to be.  In other words, it's fallen sharply in the past 2 weeks and today, hit its lowest levels since March.