Inflation

The consumer price index for August was expected to decrease 0.1% from the previous month and increase 8% from a year ago, according to Dow Jones.

Within the jump in food costs, bread prices rose 2.2% on the month and are up 16.2% from a year ago. To combat the broad surge in the cost of living, the Federal Reserve has raised interest rates four times this year for a total of 2.25 percentage points. The economy has broadly struggled in 2022 after posting its best year since 1984 last year, and inflation has played a major role. However, they remained down 2.8% from a year ago. Specifically, policymakers are concerned about a huge gap between job openings and available workers as labor force participation is stuck below its pre-pandemic levels. That is the most stubborn of everything the Fed is fighting at this point." Excluding volatile food and energy costs, CPI rose 0.6% from July and 6.3% from the same month in 2021. That has resulted in rising wages that have in turn put pressure on prices. "Today's CPI reading is a stark reminder of the long road we have until inflation is back down to earth," said Mike Loewengart, head of model portfolio construction for Morgan Stanley's Global Investment Office. Markets had been widely expecting the Fed to enact a 0.75 percentage point rate increase at its meeting next week. The respective year-over-year forecasts were for 8% and 6% gains. "It's very clear to them that it's food, it's transportation and it's rent.

Amid hopeful signs that U.S. inflation was about to cool off, Tuesday's Consumer Price Index report underlined the risks that it could remain high.

The most important service category is rent-related costs, which count for nearly a third of overall inflation and which continued a steep ascent in August. And even if price increases begin to pull back, a key question is: How much will inflation slow? “The bigger question for the Fed is not: Has inflation peaked? Big increases in such service categories could be poised to continue, because their prices are closely linked to wages, which have been climbing notably as a result of a strong job market with low unemployment and worker shortages that span many fields. With war in Ukraine still stoking uncertainty about supply chains and commodity markets, central bankers may be slow to declare victory on inflation. Goods inflation might continue to ease because consumers are shifting their spending away from products they snapped up during the pandemic and back toward services, like restaurant dinners and vacations. Notably, price increases for used cars, which helped drive the pop in inflation that began last year, are beginning to pull back — falling 0.1 percent over the past month. It is typically expressed as the annual change in prices for everyday goods and services such as food, furniture, apparel, transportation and toys. That would be good news for consumers, who tend to be sensitive to transportation and grocery costs. So far, that has yet to happen — and in fact important signs point in the other direction. For Federal Reserve officials, lower gas and food prices would be a welcome, but not decisive, development. A more meaningful positive development is taking place in goods prices, some of which are showing early signs of cooling off.

Rather than fuel, it was food, shelter and medical services that drove costs higher in August, slapping a costly tax on those least able to afford it.

Markets are betting the central bank raises benchmark rates by [at least 0.75 percentage point next week](https://www.cnbc.com/2022/09/08/tough-fed-rate-talk-pushes-wall-street-economists-to-expect-a-big-hike.html), which would take the fed funds rate to its highest level since early 2007. Indeed, new vehicle prices and medical care services both increased 0.8% for the month. [survey released earlier this week](https://www.cnbc.com/2022/09/12/falling-gas-prices-are-raising-hopes-that-inflation-is-slowing-new-york-fed-survey-shows.html) by the New York Fed showed consumers are growing less fearful about inflation, though they still expect the rate to be 5.7% a year from now. Veterinary costs rose 0.9% on the month and were up 10% over the past year. There also are signs that [supply chain pressures are easing](https://www.newyorkfed.org/research/policy/gscpi#/interactive), which should be at least disinflationary. The breadth of the strong price increases, from new vehicles to medical care services to rent growth, everything was up strongly," said Mark Zandi, chief economist at Moody's Analytics. "I have not changed my forecast for inflation to get back to [the Federal Reserve's 2% target] by early 2024, but I'd say I hold that forecast with less conviction." Including food and energy, the index rose 0.1% monthly and a robust 8.3% on a 12-month basis. "The core inflation numbers were hot across the board. While the summertime decline in energy prices has helped temper headline inflation numbers, it hasn't been able to squelch fears that Once supply chains eased and gas prices abated, the thinking went, that would help lower food costs and in turn ease price pressures across the economy. Veterinary care was up 10% from a year ago.

US inflation ticked back up in August, despite plunging gas prices, according to data from the Bureau of Labor Statistics released Tuesday.

A prolonged period of historic rate hikes could do serious damage to the US economy. Almost all other categories saw price increases, including shelter, which increased 0.7% in August and is up 6.2% year-on-year, the largest increase since 1991. The last time the headline CPI rate declined in consecutive months was the first part of 2020. The month-on-month gain of 0.6% was double what economists had expected. Economists had projected that inflation would fall from July to August by 0.1%, after holding steady at 0% growth from June to July. On a monthly basis, consumer prices rose 0.1% from July, according to the Consumer Price Index, which measures a basket of consumer goods and services.

Inflation saw a 0.1% for August according to the CPI report, but this was almost entirely due to gasoline prices, other prices rose more than the Fed wanted ...

So markets believe that today’s report has made the Fed slightly more nervous about where inflation is trending. inflation may be trending in the right overall direction, but it’s not getting there fast enough for the Fed. The Fed wants to see a broad range of prices signal that the wave of inflation is past, that’s not a conclusion that’s easy to draw from this CPI report. So today’s inflation report despite the low month-on-month number is not good news for markets. Even though food costs rose 0.8% for the month, which is high, that’s still the lowest level of food price inflation that we’ve seen in many months. Still the CPI report was not entirely negative.

Stocks plunged, government bond yields soared and the dollar bounced after investors were wrong-footed by data showing stubbornly high price increases last ...

“Investors were getting too comfortable with the idea that inflationary pressures were easing.” On Tuesday, the analysts raised their expectations to a full point. For a time, some had bet on a less aggressive, half-point increase as the more likely option. “This will leave the Fed more concerned.” Yet there is also acknowledgment that the Fed’s task has been made harder by stubbornly high inflation. With a sense that the Fed’s message had been received, some investors began to see the higher path forward for interest rates as a possible limit on how high rates would go. And the U.S. Every sector in the S&P 500 index fell as investors rethought how much the Fed may need to raise interest rates, which makes borrowing more expensive for consumers and companies. Then, a series of speeches by Fed officials, including the central bank’s chair, The Nasdaq Composite stock index, which is full of tech stocks that are seen as more sensitive to rising interest rates, fell nearly 4 percent. “We are not out of the woods yet. Stocks, which were trading higher in the hours before the data was released, turned sharply lower, with the S&P 500 slumping 3 percent.