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

Economic Indicators Sep 13, 2022 08:41AM ET
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By Geoffrey Smith

Investing.com -- 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."

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

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Comments (69)
Jaba Sifrashvili
Jaba Sifrashvili Sep 14, 2022 6:30AM ET
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hai
nils Hullmann
nils Hullmann Sep 14, 2022 5:21AM ET
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bpbp = bidens pension bonfire party
bill selv
bill selv Sep 14, 2022 4:52AM ET
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Anyone know todays nasdaq. I need money for college
Mohammed Khalid
Mohammed Khalid Sep 14, 2022 4:52AM ET
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Buy
Juniur Wan
Juniur Wan Sep 14, 2022 4:52AM ET
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Short
Juniur Wan
Juniur Wan Sep 14, 2022 4:52AM ET
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Short it now
Juniur Wan
Juniur Wan Sep 14, 2022 4:52AM ET
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Short it now
Muyendekwa Mulonda
Muyendekwa Mulonda Sep 14, 2022 4:52AM ET
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sell
Steves View
Steves View Sep 14, 2022 4:41AM ET
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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.
규민 김
규민 김 Sep 14, 2022 3:41AM ET
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biden regardless in mid-election lol...
Mark L
Mark L Sep 13, 2022 6:51PM ET
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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.
Dan DuBois
Dan DuBois Sep 13, 2022 6:19PM ET
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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.
Cody Hawkins
Cody Hawkins Sep 13, 2022 5:50PM ET
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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.
Jack Peterson
Jack Peterson Sep 13, 2022 2:35PM ET
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Thank you Biden and Manchin for the Hyperinflation Act of 2022…. Well done
Cody Hawkins
Cody Hawkins Sep 13, 2022 2:35PM ET
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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.
Jack Peterson
Jack Peterson Sep 13, 2022 2:35PM ET
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Agreed!
Vito Tagliano
Vito Tagliano Sep 13, 2022 2:15PM ET
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Stop fighting the Fed! Otherwise “Volcker Rule” history going to repeat in my opinion!
 
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