A majority of market participants (or their mentors) were steeped in the extraordinary inflation/rate volatility of the late 70's and early 80's. As the recovery from the financial crisis began, and as the Fed was pumping trillions of dollars back into the system, these market participants thus had an unhealthy fear of every little uptick in inflation at first. As reality unfolded, we've seen that worrying about inflation was a waste of energy at best, and a fool's errand at worst. I know I had a great time making fun of them from 2011-2015 at least.
Things began to change in late 2015. Inflation began a quick and unequivocal return to relevance as core CPI shot up from a steady, depressed state at 1.6-1.7 to 2.3% by Febraury 2016. Had it not been for Brexit, we likely would have seen more of a correlated pressure on interest rates as a result. The old dogs would finally have their day! Inflation was coming back and they were about to be vindicated.
Then, heading into the summer of 2017, core CPI mysteriously fell off a cliff again. And bonds were clearly willing to react. Several of the biggest, best days for bonds in 2017 coincided with CPI reports that showed core y/y consumer prices remaining in a 1.6-1.7 range. But hey! At least a correlation between inflation data and bond market movement was getting reestablished.
In the past 2 reports, we saw core inflation attempt to move back up to 1.8% only to fall back to 1.7% in the most recent report. Now today's numbers call for 1.7% again. If the number deviates from that consensus--especially if it's by more than 0.1%, we can expect a reaction in the logical direction. That said, we also might be more interested in Retail Sales for the month of December released at the same time.
Forecasters think Retail Sales will be weaker than in November. There's a risk they're failing to account for the intangible motivations of tax planning (i.e. people and businesses trying to by "stuff" in 2017 where the write-offs will have done more to minimize tax burdens relative to 2018). Bottom line, if inflation ticks up and Retail Sales surprise to the upside, it's back to the selling spree.