The CPI increased 0.4% in September, up 8.2% from a year earlier. CPI was resurgent in August and has not pulled back despite US Administration grandstanding and aggressive Fed interest rate rises. Clearly it a result of domestic policy missteps, supply and geopolitical headwinds. Core consumer prices increased 6.6% from a year ago, the highest level since 1982. From a month earlier, the core CPI climbed 0.6% for a second month. The promised pull back in consumer prices never happened. Clearly, the war is hardly won against high prices.
The advance in prices was broad based. Shelter, food and medical care indexes were the largest of “many contributors,” the report said. Prices for gasoline and used cars declined. Inflation is uncomfortably high.
The Fed is likely to want evidence of an inflation slowdown, another 0.75-point rate rise could be on the table at the next meeting as rises “depend on the data we get between now and then.”
The report pulled the rug from already depressed stock markets. Stock markets collapsed as the Bond market warned yesterday with a weak 10-year auction. Within seconds that was eroded with the knowledge that politicians and bankers had no clue, was that a surprise?
- Fed Swaps Fully Price 75Bps Rate Hike in November
- Price In Peak Policy Rate Of 4.85% in March 2023
- US 2 year yields rose 22.5 basis points today through the old 4.36% high and hit 4.50% for the first time since 2007.
- US 10 year new cycle highs at 4.056%, up 15.5 basis points. Took out the 4.01% high seen in September. The yield is at the highest level since October 2008.
- US stocks sharply lower with S&P down -77 points. The Dow down over 500 points. NASDAQ down over 300 points.
- US dollar is higher. Strongest to the weakest, the GBP is the strongest, followed by the USD. The AUD and the NZD are the weakest as they run to the downside. Note Cable higher as potential for a backtrack of the PM Truss fiscal plan and now higher US CPI.
US August 2022 Highlights
CPI
- US CPI (M/M) Sep: 0.4% (est 0.2%; prev 0.1%)
- US CPI (Y/Y) Sep: 8.2% (est 8.1%; prev 8.3%)
- Increases in the shelter, food, and medical care indexes were the largest of many contributors to the monthly seasonally adjusted all items increase.
- These increases were partly offset by a 4.9-percent decline in the gasoline index.
- The food index continued to rise, increasing 0.8 percent over the month as the food at home index rose 0.7 percent. The food index increased 11.2 percent over the last year
- The energy index fell 2.1 percent over the month as the gasoline index declined, but the natural gas and electricity indexes increased. The energy index increased 19.8 percent for the 12 months ending September, a smaller increase than the 23.8-percent increase for the period ending August.
- The shelter index continued to increase, rising 0.7 percent in September, also the same as in August. The rent index rose 0.8 percent in September. The owners’ equivalent rent index also increased 0.8 percent over the month, the largest monthly increase in that index since June 1990. The index for lodging away from home fell 1.0 percent over the month.
Core inflation:
- US CPI Core (M/M) Sep: 0.6% (est 0.2%; prev 0.6%)
- US CPI Core (Y/Y) Sep: 6.6% (est 6.5%; prev 6.3%)
Real Earnings
- Real Avg Hourly Earnings YoY -3%
- Real Avg Weekly Earnings YoY -3.8%
Real weekly earnings are down for a record 17th consecutive month. Inflation-adjusted earnings have declined for 89% (16 of 18 months).
Shelter Costs Adding to Homeless
Shelter costs, the biggest services’ component and make up about a third of the overall CPI index rose 0.7% for a second month. Rent of shelter was up the most on record on an annual basis, as was owners’ equivalent rent.
What is unnerving the housing components of the report have a lag between real-time changes in rents and home prices and when those are reflected in Labor Department data.
Owners’ equivalent rent portion of CPI, fastest gain since June 1990
Increases in the cost of food, electricity and shelter were the largest contributors again to the monthly rise, the Labor Department said
Many analysts had expected March, clearly, they have been mistaken to mark the inflation peak although the war in Ukraine is far from over, supply chain bottlenecks persist, and consumer demand remains elevated which is likely to weigh on the CPI.
Monthly Price Increases
- CPI energy -2.1% vs -5.0% prior
- Gasoline -4.9% m/m vs -10.6% prior
- New vehicles +0.7% vs +0.8% prior
- Used vehicles -1.1% vs -0.1% m/m prior
- Owners’ equivalent rent +0.8% m/m vs +0.7% prior
- Food +0.8% vs +0.8% prior
Yearly Price Increases
- 42.9% airline fares
- 33.1% utility gas
- 30.5% eggs
- 18.2% gasoline
- 17.2% chicken
- 15.7% coffee
- 15.2% milk
- 14.7% bread
- 10.1% furniture
- 9.2% vegetables
- 8.2% all items
- 8.2% fruit
- 8.1% ham
- 7.6% women apparel
- 7.2% used cars
- 6.7% rent
- 3.7% men apparel
The hope was the slowdown back in April was a sign that inflation had probably peaked, the inflation is unlikely to fall to pre-pandemic levels any time soon and will remain above the Fed’s 2% target for a long time as supply disruptions persist and energy and food prices remain elevated.
US CPI August 2022
Core Inflation y/y
Food
Food inflation in the United States accelerated for a 15th straight month to 11.4% in August, the highest since May of 1979. Cost of food at home (16.7%), cereals and bakery products (16.4%), fruits and vegetables (9.4%) and dairy and related (16.2%) recording the highest increases.
Housing Utilities
Transportation
US Core CPI July 2022
Energy component of August CPI fell by 5% m/m, largest contraction since April 2020
The effects of the coronavirus pandemic, then the supply crisis and throw in the Russian invasion of Ukraine on top have been weighing on prices. Since last year many businesses closed and lockdowns were imposed, denting economic activity leaving the world vulnerable. A jump in commodities and material costs, coupled with supply constraints pushed producer prices up and some companies are passing those costs to clients
“I’m making more money…But I don’t see it because I’m paying more money for stuff now.” Low-wage workers are getting sharp raises. Inflation is eating them up. via Greg Ip WSJ
From the Traders Community News Desk