NEW YORK (CNN/Money) - Inflation. Rising rates. Historically, that's been a lethal combination for stocks. But this time around, investors are seeing the bright side.

On the news Wednesday morning of the surprise gain in the consumer price index (CPI), the market seemed unsure of how to react. Stock prices fell sharply at first, then recovered, then fell again, all in the course of less than an hour of early trading.

At first blush, the negative reaction would seem to be dead on. Higher inflation could be bad news for economic growth if it keeps consumers from spending. If the Federal Reserve raises rates to cool off the economy, that could be bad news for stocks, making financial conditions too tight for comfort. The last time the Fed went on a rate-hiking spree, in 1994, the S&P 500 had a down year.

On the other hand, a jump in inflation could mean that, after years of scary talk about disinflation and deflation, companies are finally getting a taste of pricing power, which could be good news for earnings. If inflation and higher rates are just the smoke that comes from a hot economy, then bring 'em on, some analysts said.

Related stories Prices stage surprise spike Higher rates? Bring 'em on U.S. job growth soars

"Once we get over the shock of the headline, I find it hard to argue that this is a negative," said Phil Dow, equity strategy director at Dain Rauscher Wessels.

"If we have a series of big moves up, that would be a shock to the system," Dow added, "but, considering where are from a historical perspective, they could go up more gradually and not be a terrible headwind for the market."

Sure enough, by mid-day, stocks were moving higher, though they fell again later in the afternoon.

The news was more clearly bad for Treasury bonds, which fell to their lowest levels of the year in early trading. Yields, which move opposite to prices, added to their earlier gains in the month, with the rate on the 10-year note up to to 4.41 percent.

"Where does the bond guy put his money now?" asked John Davidson, president and CEO of PartnerRe Asset Management. "Stocks can absorb inflation more readily than bonds, because you can come through with better pricing power and stronger earnings."

Some economists cautioned not to read too much into one report. Just as they did in March when non-farm payroll growth was far stronger than expected, they warned it was too soon for the Fed to man its battle stations against inflation -- the Fed will need to see at least a few more months of such data to begin that fight.

If payrolls and CPI lose steam -- as some economists think they might in the next couple of months -- then the Fed can be much more gentle about raising rates.

"Right now bonds are reacting, and perhaps overreacting, to employment and CPI," said Dorsey Farr, senior economist and market strategist for Wilmington Trust. "What we will probably see in the next couple of months is that we aren't as close to an interest-rate hike as those two reports might suggest."

For the time being, expectations of higher rates are a definite plus for the dollar, at least. Rising interest rates make U.S. investments more attractive, luring foreign investors to U.S. markets. To get in, they have to pay in greenbacks, so they dump their euros, yen and yuan, making the dollar more dear.

YOUR E-MAIL ALERTS Bonds Economic Indicators Stocks Inflation or Create your own Manage alerts | What is this?

"Today's inflation figures have boosted the dollar across the board on accumulating chances that the Fed will raise interest rates as early as this summer," said Ashraf Laidi, chief currency analyst at MG Financial Group in New York.

Ironically, a strengthening dollar would put the brakes on inflation, giving consumers more buying power. But many analysts still believe the dollar has a ways to fall in the long run, thanks to the massive U.S. trade deficit with the rest of the world. A stronger dollar would slow exports, making that trade gap grow bigger, possibly raising the risk of a precipitous dollar fall.

In the nearer term, Wednesday's CPI report raises the risk -- however slight it may be -- that inflation and interest rates could blaze out of control, which would really put the kibosh on corporate profits, stock prices and the economy.

"I don't think the evidence supports the view that we will get there," said Michael Carty, stock market strategist at New Millennium Advisors. "But it's a situation that bears watching."

Rising rates have certainly got to make investors in rate-sensitive sectors nervous. Such sectors include financials and real estate investment trusts (REITs), which have thrived as rates have been at their lowest in a generation. REIT shares have fallen hard since the March payrolls report.

But they seemed to shrug off the CPI news on Wednesday, suggesting maybe the worst was already over for the sector. The biggest residential REIT, Equity Residential (EQR: Research, Estimates), was actually up by midday, as were other REITs, including Equity Office Properties (EOP: Research, Estimates) and Simon Property Group (SPG: Research, Estimates).

"Everybody has pretty much priced in the reality of a rate increase," said Kevin Tynan, who follows Equity Residential for Argus Research. "[Activity] now is based on fundamentals of the companies and sectors, as opposed to the prospect of the Fed stepping in to raise rates."

Home-building stocks, such as Pulte Homes (PHM: Research, Estimates) and Lennar (LEN: Research, Estimates), were also holding up -- but they, too, had already suffered in the wake of the March payrolls report.

Financial stocks, on the other hand, including Morgan Stanley (MWD: Research, Estimates), Merrill Lynch (MER: Research, Estimates) and Goldman Sachs (GS: Research, Estimates), did not take the CPI news well. Many of them had not taken such a hit after the payroll report.