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U.S. CPI Surprises to the Upside Again in August, Paving Way for Jumbo Fed Hike

Published 09/13/2022, 08:32 AM
Updated 09/13/2022, 08:41 AM
© Reuters

By Geoffrey Smith -- U.S. inflation turned out stronger than expected yet again in August, paving the way for another big hike in interest rates from the Federal Reserve when its policy-makers meet next week.

The consumer price index rose 0.1% in August, and was up 8.3% from a year earlier, the Bureau of Labor Statistics said on Tuesday. Analysts had expected prices to fall by 0.1% thanks to the steady decline in gasoline prices from their summer peak.

However, that factor was overwhelmed by big increases in the less volatile elements of consumer spending. The so-called 'core CPI' rose a thumping 0.6%, twice what was expected, driving the annual core inflation rate up to 6.3% from 5.9% in July. That's the highest it's been since the 40-year high that it hit in March.

"This is a much much worse CPI report than anyone was expecting," tweeted Justin Wolfers, a professor of economics at the University of Michigan. "The decrease in headline inflation due to lower energy prices is there, but the underlying rate -- best proxied by core inflation -- is running a fair bit higher than anyone forecast and most of us hoped."

Gasoline prices fell 10.6% during the month but that was partly neutralized by a rise in natural gas and electricity prices, indirectly driven by the energy crisis in Europe due to Russia's war in Ukraine. The effect of cheaper energy was then completely overwhelmed by rises in the prices for housing and medical care, which rose 0.7% and 0.8%, respectively.

While the current surge in inflation may have been first seen in energy prices, it has now become increasingly entrenched in other areas of spending. Only two sectors - recreation and education - are now showing annual inflation rates of less than 5%, according to ADM ISI strategist Marc Ostwald.

The dollar instantly gained more than a cent against the euro on the news, as market participants moved to price in another rate hike of 75 basis points from next week's Fed meeting. The same calculation sent stock futures into reverse, leaving Dow Jones futures down 1.8%, S&P 500 futures down 2.3%, and Nasdaq 100 futures down 2.9%. All three had posted solid gains on Monday and had been on course to extend those gains before the release.

Crude Oil Futures, which had risen in the last couple of days as the dollar weakened, also went sharply into reverse, falling by over $1/barrel to be down 0.7% on the day, while Gold Futures fell 1.5% to hit their lowest in a week.

Both oil and gold tend to react negatively to rising interest rates, a trend that seems set to continue when the Fed's Federal Open Markets Committee meets again in a week's time.

"Markets are likely to fret about a 100 basis point hike at next week's meeting," Ostwald wrote in a note to clients. He noted that market participants "have again been guilty of going down the long-time habitual route of blithe positivism and are again been derailed by reality."

Latest comments

bpbp = bidens pension bonfire party
Anyone know todays nasdaq. I need money for college
Short it now
Short it now
Global Reset.                      Virus was strong case of flu. Hospital couldn't even test for covid. In mean time, To get more money had to spend more money.                       Taxes now will be 50%. Cost of consumer goods, Plus 50% . This administration, along with OBAMA, Have destroyed American way of life.                       Something bigger is coming soon. Hope we all can make it to party.
biden regardless in mid-election lol...
We are governed by reckless ideologues with zero economic credentials. Yellin's a political ******** The good news is you can now choose your gender out of a vending machine and legally marry your dog.
My 401K is now only a 201B. I’ve had to cut back on charity. It’s a spiral and getting worse. Everyman for themselves. RUN!Stupid Keynesians.
The global economy is stuck between a rock and a hard place. I fear this may be the start of a global depression. This is what modern monetary theory gets you when there are no checks and balances. There is nowhere to hide.
Thank you Biden and Manchin for the Hyperinflation Act of 2022…. Well done
It takes about 2 years for these bills to impact the real economy. What we are seeing now is from the first couple of Covid bills, courtesy of Congress. The "Inflation Reduction" Act will only add gas to what we see now, but it will be about a year and a half before we see that hit. So we could be in a long term inflationary period. The bill they just passed will severely damage the economy whether people want to believe it or not.
Stop fighting the Fed! Otherwise “Volcker Rule” history going to repeat in my opinion!
great news. all sector's are way overvalued. real inflation is 15-20%, real estate, car markets. We need higher rates to crush prices down .
Woohoo. Things are getting interesting
Utilities, gas and food average around 24%. I don't know what statistical equation they are using to calculate this but they don't weigh actual necessities very heavy.
stop drinking the Cool aid. Nat gas & energy rose in the US because of our govt's energy policies, now because of some war halfway around the globe.
Oh, yeah? What policies, specifically?
So, no example of a specific policy. That's what I thought.
Now you're seeing the results of "The Most Pro-Union President in History." Rail strike (last offer=$150k per year avg. wage.) Nurses strike. The baristas have a union, teachers' aides have a union. Welcome to France !!
Take it easy the master trend is that Inflation is going downand have been doing so since june. so it is off course nice with an overreaction so that we can buy stocks cheaper.
Yes energy is going lower AS the market is forecasting a recession in 2023. With labour shortages and energy prices set to rise again in Nov as winter /EU sanctions versus Russia kicks in ...chances are the fed will need to lift rates to 4%+ to drag growth down to prevent inflation from getting entrenched above 5%
backfired from trade war
Very informative and well written article Geoffrey..
It’s only transitory! Yellen said so! Lol
When are we going to stop blaming Putin for energy prices going up? These increase are a result of this administration green new deal. Most of the economic catastrophe is manufactured by the current administration in the oval office.
and senseless/endless money printing increasing the currency supply and CAUSING prices to rise
Green new deal? There is no green new deal. You don't know what you are talking about.
the depletion of our strategic oil reserves is the cause of any discount on oil and gas. They will likely continue to drain those supplies until November for political reasons. after that they won't care about rising oil and gas prices because they are only concerned about coming elections. After that I believe the goal is to cause energy costs to rise so high that alternative energy appears to be the only solution. It's all about optics. This administration made its first assault on oil with the pretenders first executive orders. They are not done yet, just slowed for elections and will ramp up there attack on oil after midterms.
Not a time to be brave". Global equity markets declined in August, ending the rebound that began in July. Most of the #economic data released last month points to an economic slowdown. #centralbanks are choosing to ignore this as they focus efforts on fighting #inflation amid an energy crisis of historic proportions. Meanwhile, market trends remain bearish as market breadth deteriorates. In this context, it is not the time to be brave in asset allocation choices. Market bounces are likely to be part of a more volatile environment which will continue until the conditions for a market bottom are met. GL
Isn’t YOY dropped? lol eager to see hmthe news headline from white house!!!!
is the Biden inflation reduction act party still on??
it's a self defeating law.... how can this law defeat inflation by printing 600 billion????
 its what you get from Dems, smoke and mirrors, renamed it the IRA to trick Manchin and the public.
All of these incremental increases by the Fed. An talks in between these incremental increases. Keeps the Market SPOOKED.
Leave it to US Congress to pass trillions of dollars in spending and give everyone $1000, then leave use with massive amounts of debt and massive inflation. All of this caused by their reaction to covid, lock everything down. They are the problem, but trying to sell to us they provided a solution. The economy is weak because governments only know how to deficit spend.
if people within government were fiscally restrained by law, the mandatory jabs and all the money spent would have never happened,  major parts of the economy would not have been shut down.  the response to covid-19 would have been simply, "let's contain those over 65 and other most vulnerable" and try to lead a normal life.
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