This morning the Bureau of Labor Statistics reported that the Consumer Price Index (CPI) rose 0.3% in August (on a seasonally adjusted basis.) That comes after a 0.5% increase in July. Year over year the headline CPI rose 5.3% in August. That’s slightly below the 5.4% 12-month increase in July.
The indexes for gasoline, household furnishings and operations, food, and shelter all rose in August. The energy index increased 2.0%, mainly due to a 2.8% increase in the gasoline index. The index for food rose 0.4%, with the indexes for food at home and food away from home both increasing 0.4%.
Core inflation–that is inflation without energy or food prices–rose just 0.1% in August. That was the smallest monthly increase since February 2021. The core inflation rate was up 4.0% over the last 12 months in August. That’s again a smaller increase than in the 12 months ending in July.
Stocks initially rose on the news with the Standard & Poor’s 500 opening at 4479, up from the September 13 close of 4460. First thought, I’d say, was that inflation for August had come in below economist expectations and that supported the Federal Reserve’s position that high inflation was transitory and that inflation would fall as the economy worked through Pandemic supply chain glitches. The lower than expected inflation number made it likely that the Fed would delay even longer before starting to reduce its $120 billion in month bond purchases.
But the market has had second thoughts about that. At 3 p.m. the S&P 500 was off 0.68% and the Dow Jones Industrial Average was lower by 0.97%. The NASDAQ Composite was down 0.55% and the small cap Russell 2000 index had tumbled 1.27%.
The thinking seems to be that the reduction in the inflation rate is so small that it’s hard to call it a turning point back toward the Fed’s 2% target.
The CBOE S&P 500 Volatility Index (VIX) was up 4.28% to 20.20 as of 3 p.m.
I know sarcasm is often lost on the Internet, but I thought, given all I’ve written disagreeing with the “inflation is transitory” argument that you would have gotten my disagreement with investor reaction to today’s CPI numbers that sees inflation as under control.
Can someone tell me how political leaders & some economists are claiming inflation is temporary, slightly up or under control; I am more upset with financial institutions & you reporting on the marginal inflation claims. TSM plans to raise prices on its silicon by 10% to 20% in 2022. Did you report that 30% of auto costs are chip related? How about food prices…….I shop & observe prices on milk, cheese, fish etc up 10-15%. Meat ( beef & pork) is up 20% Why is inflation being down played? Do any of these experts actually buy groceries. Maybe they mostly eat in restaurants.