Well, that inflation data preview over the weekend might’ve gotten our hopes up a little too much, as the August inflation data blew investor expectations out of the water. The PriceStats data did predict what happened, but the real data was at a higher degree, and it’s clear the inflation crisis is nowhere close to being finished.
Prices increased by 8.3 percent in August, an improvement from 8.5 percent in July due to gas prices falling by more than 10 percent in the last month. This might seem good at face value, but the metric economists really care about is core inflation, which measures price increases while excluding energy and food prices due to their volatility. Core inflation CPI rose by 6.3 percent, which was an increase from 5.9 percent in July. This was a terrible sign for the economy as this solidified the case that inflation is continuing to persist in the economy, and this comes after multiple hikes by the Federal Reserve. Vehicle prices continued to increase along with housing and shelter costs, and even though food prices are excluded, it’s important to note that costs are rising by a good amount there. The previous report gave us some belief that inflation was really starting to slow down, but August has completely removed that belief. According to data from Moody’s, the average American is spending $460 more every month to buy the same goods and services as last year, and this is unsustainable for some families.
All of this resulted in the worst day for the stock market since June of 2020, with the indices falling by more than 4 percent each. This data solidifies the Federal Reserve’s decision next week, but it also plays a key role in the interest rate decisions after that as Powell said the officials need to see consistent progress before dialing it back. Tech stocks took a massive beating as interest rates are not for them, and fears of a U.S. recession are starting to creep up again.
I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.