Wednesday brought an alarming inflation surge that has left economists and financial markets in a state of surprise, as the Consumer Price Index (CPI) awakened vigorously last month from a year-long hibernation.
Inflation Surges Beyond Expectations In August
- The annual CPI inflation rate soared from 3.2% in July to a notable 3.7% in August 2023, surpassing economist expectations of a 3.6% increase.
- On a monthly basis, the CPI accelerated sharply, rising by 0.6% in August, a stark contrast to the 0.2% increase seen in July, but in line with expectations. This marked the sharpest monthly CPI increase since June 2022.
- The primary driver of the monthly increase in all items in August was the gasoline index, up 10.6% month-on-month, which accounted for more than 50% of the overall rise. Additionally, the shelter index, which has been steadily increasing for the 40th consecutive month, also played a role in the August monthly increase.
- When energy and food items are excluded from the basket, the core CPI showed a different picture. It decreased from July’s 4.7% to 4.3% year-on-year in August, matching economists’ predictions.
- The core CPI’s monthly increase was 0.3%, advancing from July’s 0.2% figure, and above than the expected 0.2%.
Read also: CPI Report Countdown: 5 ETFs Bracing For August’s Inflation Numbers
Market Reaction, Fed Speculation
The August CPI data, released by the Bureau of Labor Statistics, has come in hotter than anticipated, fueling concerns about the Federal Reserve’s future actions.
Prior to the release of the CPI data, the market had been pricing in a 93% probability the Federal Reserve would refrain from raising interest rates during its Sept. 20 meeting. Additionally, there was a 58% chance that rates would remain unchanged in November.
Markets were volatile Wednesday ahead of New York’s opening bells, with S&P 500 futures moving on the flatline, after the SPDR S&P 500 ETF Trust SPY closed 0.5% lower on Tuesday. The U.S. Dollar Index, as tracked by the Invesco DB USD Index Bullish Fund ETF UUP, edged up by 0.2%.
Table: Percent changes in CPI for All Urban Consumers (CPI-U): U.S. city average
| August 2023 vs. July 2023 month-on-month (%) | Aug 2023 vs. August 2022 year-on-year (%) | |
|---|---|---|
| All items | 0.6 | 3.7 |
| Food | 0.2 | 4.3 |
| Food at home | 0.2 | 3.0 |
| Food away from home | 0.3 | 6.5 |
| Energy | 5.6 | -3.6 |
| Energy commodities | 10.5 | -4.2 |
| Gasoline (all types) | 10.6 | -3.3 |
| Fuel oil(1) | 9.1 | -14.8 |
| Energy services | 0.2 | -2.7 |
| Electricity | 0.2 | 2.1 |
| Utility (piped) gas service | 0.1 | -16.5 |
| All items less food and energy | 0.3 | 4.3 |
| Commodities less food and energy commodities | -0.1 | 0.2 |
| New vehicles | 0.3 | 2.9 |
| Used cars and trucks | -1.2 | -6.6 |
| Apparel | 0.2 | 3.1 |
| Medical care commodities(1) | 0.6 | 4.5 |
| Services less energy services | 0.4 | 5.9 |
| Shelter | 0.3 | 7.3 |
| Transportation services | 2.0 | 10.3 |
| Medical care services | 0.1 | -2.1 |
Now read: Apple Event Fails To Impress Bulls: Why Apple Stock Is Now In Bearish Slide
Photo via Shutterstock.
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