Stocks will likely take a breather today following the strong gains on Thursday that helped them reach new highs. The Thursday gains followed a slew favorable domestic economic reports and renewed optimism on the Greek bailout issue.

This morning’s benign inflation reading and reports of Congressional agreement to extend the payroll tax cut may not be enough power stocks higher. But this rally defied predictions thus far, so I wouldn’t be overly surprised if stocks start heading higher later this afternoon ahead of the President’s Day weekend.

The Consumer Price Index (CPI) for January came broadly in-line with market expectations, up 0.2% on the ‘headline’ after December’s ‘unchanged’ reading. ‘Core’ CPI, which strips out food and energy, also matched expectations, up 0.2% after the 0.1% increase in December. The year-over-year readings were 2.9% for the ‘headline’ and a tad hotter for the ‘core’ reading at 2.3%. In December, the year-over-year CPI readings were 3% and 2.2% for the ‘headline’ and ‘core,’ respectively.

Any way you look at the inflation numbers, it doesn’t seem to be problematic. The Fed pays close attention to the inflation picture, but its statement following the January FOMC statement characterized price pressures as ‘subdued.’ Today’s CPI reading not only confirms the Central Bank’s assessment, but also leaves open the door for further quantitative easing should conditions warrant.

Minutes of the last Fed meeting released earlier this week showed a divided FOMC on the need for additional quantitative easing. But the fact remains that the committee has supporters of further easing.

We will also get the Conference Board’s Leading Economic Indicators for January, but the release is unlikely to be a major market mover today. In another favorable development, Congress appears on track to extend the payroll tax cut for the rest of the year, on an unusually bipartisan basis. Please recall that the earlier three-month extension late last year followed an extremely noisy and rancorous debate. In addition to the tax cut extension, the package includes extended unemployment benefits, and a Medicate reimbursement fix.

On the earnings front, we have positive surprises from H.J. Heinz ( ( HNZ - Analyst Report ) and Campbell Soup ( ( CPB - Analyst Report ) this morning. But Pilgrim’s Pride ( ( PPC - Snapshot Report ) , the chicken processor, missed expectations. Applied Materials ( ( AMAT - Analyst Report ) came out with better than expected results after the close on Thursday.