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Stocks Hammered as CPI Rises a Mere 0.1 Percent More Than Expected

The CPI rose 0.1 percent in August and that was 0.1 percent more than economists expected.
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CPI Data from BLS, chart by Mish

CPI Data from BLS, chart by Mish

Please consider the BLS Consumer Price Index report for August 2022. 

  • The Consumer Price Index for All Urban Consumers (CPI-U) rose 0.1 percent in August on a seasonally adjusted basis after being unchanged in July. 
  • Over the last 12 months, the all items index increased 8.3 percent before seasonal adjustment. 
  • Increases in the shelter, food, and medical care indexes were the largest of many contributors to the broad-based monthly all items increase. These increases were mostly offset by a 10.6-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 energy index fell 5.0 percent over the month as the gasoline index declined, but the electricity and natural gas indexes increased. 
  • The index for all items less food and energy rose 0.6 percent in August, a larger increase than in July. 
  • The indexes for shelter, medical care, household furnishings and operations, new vehicles, motor vehicle insurance, and education were among those that increased over the month. 
  • There were some indexes that declined in August, including those for airline fares, communication, and used cars and trucks. 
  • The all items index increased 8.3 percent for the 12 months ending August, a smaller figure than the 8.5- percent increase for the period ending July. 
  • The all items less food and energy index rose 6.3 percent over the last 12 months. The energy index increased 23.8 percent for the 12 months ending August, a smaller increase than the 32.9-percent increase for the period ending July. 
  • The food index increased 11.4 percent over the last year, the largest 12-month increase since the period ending May 1979.  

Unexpected by Whom?

Other Guesses

8.3 Percent Explained

I guess I get bragging rights.

CPI Month-Over-Month OER and Rent 

CPI Month-Over-Month OER and Rent 2022-08

CPI Energy

CPI Month-Over-Month Energy 2022-08

Gasoline was down 10.6 percent but energy down less than half that.

Rent and OER constitute about 31 percent of the entire CPI. Rent is 7.246 percent and OER 23.654 percent.

Food is another 13.527 percent. 

It's tough to get a negative month-over-month CPI with rent, OER, food, and electricity all rising.

My year-over-year prediction of 8.3 percent was based on belief that electricity would partially offset gasoline while shelter and food would put the overall index positive.

 That's what happened.

CPI Year-Over-Year

CPI Year-Over-Year Percent Change NSA 2022-08
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Is There Any Good News? 

Yes, the slope of the year-over-year CPI is now negative (heading lower). I expect this trend to continue despite rising food prices. 

Rent and OER (a combined 31 percent of the index) will likely soon peak.

National Rent Price, OER, Rent 2022-08

For discussion, please see Rent Price Increases Slow But Still Contribute to Fed and Consumer Misery.

That article and chart reflects last month. OER and rent jumped again this month and that trend will continue for perhaps a few more months then turn lower.

But it's important to note that declining year-over-year numbers and declining CPI are not the same thing. Rather, the rate of change of increases has slowed and will slow further. 

63 Percent of Small Businesses SMBs Have Put Hiring on Hold

The risk of a Fed overshoot (hiking too much) is very real. Demand destruction from these hikes will set in, hiring will slow, and housing is an absolute disaster. 

Already we have seen 63 Percent of Small Businesses SMBs Have Put Hiring on Hold

Expect that trend to accelerate.

Meanwhile, as I type, the Dow is down 2.7%, the S&P 500 3.1%, and the Nasdaq 4.1%.

The market does like like any data that suggests Fed hiking will continue for the rest of the year. Apparently, even an "unexpected" 0.1 percent rise in the CPI was too much.

Get used to these reactions. The market is still priced for perfection.

This post originated at MishTalk.Com

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