US CPI Explodes Past Expectations, Lays Case for Massive Fed Rate Hike

Just when the myopic Fed was preparing to declare victory over the hottest inflation in 40 years against market expectations of a 0.1% month-over-month decline, August CPI data came barreling in like a hurricane, bringing with it the 27th consecutive month of rising inflation.

Consumer prices jumped 0.1% between July and August, cementing in an eye-watering 8.3% increase compared to last year. Core CPI, which does not include food and energy also exploded past forecasts calling for a 0.3% increase, and instead jumped 0.6% month-over-month to an annualized 6.3%. Much of last month’s increase can be attributed to a rise in food and shelter costs, which outpaced the decline in energy costs.

The BLS food index surged 11.4% over the past 12 months, while the Food at Home category jumped 13.5%— both marking the sharpest increase since 1979. Although the energy index was up 23.8% from August 2021, it dropped 5% month-over-month— the biggest decline since the beginning of the pandemic in April 2020.

The acceleration in consumer prices continues to be broad-based and rapidly eroding away at Americans’ purchasing power, even amid a slowdown in gasoline prices. Even with a Fed “forthrightly” committed to bringing inflation back to the 2% target range, policy makers still have a very long road ahead, especially if they are basing their rate decision on the “totality” of economic data, which shows a robust labour market, slowed consumer spending, soaring inflation, and the 17th consecutive month of Americans’ wage erosion.

Following the CPI print, Treasury yields and the dollar exploded higher, while the S&P 500 slumped. There is now an 80% chance of a 100 basis-point rate hike come the next policy meeting, and a 20% chance of a full percentage-point increase.

Information for this briefing was found via the BLS and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.