Markets are suddenly exuberant. Are they right to be?

well into its second year, a few words have cemented their place in the lexicon of investors. There were the subsequently much-derided predictions of a “transitory” problem. There were also the accurate forecasts of interest-rate “front-loading” by central banks and, more recently, grumbling about the belatedly “expeditious” manner in which America’s Federal Reserve has approached tightening. Attention now is on the concept of the “head fake”: the notion that a rosy batch of data suggestive of receding inflation can fuel a burst of optimism in markets, only for the dreary reality of persistent price pressures to reassert itself.At the tail end of last week, beleaguered asset prices soared, buoyed by America’s latest inflation numbers. Stocks rallied around the world. The , America’s tech-heavy benchmark, climbed by nearly 10% on November 10th and 11th, its strongest two-day rally in more than a decade. Beaten-down currencies such as the and also rebounded. Economists had expected America’s consumer price index () for the month of October to increase by 0.6% from a month earlier. Instead, according to figures released on November 10th, it rose by 0.4%. That is a small difference in the grand scheme of things. On an annualised basis, it equates to inflation of nearly 5%, well above the Fed’s target of roughly 2%. But investors were quick to extrapolate to the possibility that maybe—just maybe—inflation’s grip on the American economy was weakening.