The U.S. annual inflation report for August came in, and it was not pretty.
In fact, it was so bad that the financial markets crashed. It was an ugly sight.
But the year-over-year consumer price index (CPI) eased to 8.3%, energy prices plummeted, and President Joe Biden assured the country that progress is being made.
Why shouldn’t the economy be ebullient?
To answer that, here are five things we learned from the Bureau of Labor Statistics (BLS) CPI data.
1. Broad-Based Inflation is Entrenched
Indeed, the energy index eased to below 24% year-over-year in August. Finally!
The problem? Nearly everything was up across the board, particularly food and shelter.
The food index surged at an annualized pace of 11.4% (0.8% month-over-month). Shelter costs advanced 6.2% (0.7% MoM).
Whether the CPI report is examined from a YoY or MoM perspective, it was difficult to find a dip in anything. The only products — outside of energy — to show a notable dip on a monthly basis were peanut butter (-1%), major appliances (-1.5%), men’s suits (-2.3%), women’s dresses (-4.6%), and televisions (-3%).
2. A Food Crisis is Brewing
Eggs soared 40%, milk is up 16%, chicken has exploded by 16.6%, and coffee has spiked nearly 18%.
It costs more to nourish your body, put food on the table, and even feed babies, as baby formula surged by 12.6%.
National Economic Council (NEC) director Brian Deese recently stated that food prices are extremely high, but at least the United States, the world’s largest economy, is not going through famine like other developing countries.
Well, that’s a relief!
3. When Hawks Feast
For whatever reason, investors keep thinking the Federal Reserve is going to start easing monetary policy anytime soon.
If the August inflation report clocked in at 7.9%, stocks would have enjoyed a tremendous rally.
But policymakers, from Fed Chair Jerome Powell to Vice Chair Lael Brainard to St. Louis Fed Bank President James Bullard, have uttered the same thing: Interest rates are rising, and they will stay higher for longer.
Financial markets cannot believe this, especially if the nation is on the brink of a sharp economic downturn.
Has inflation peaked? The September and October prints should offer a better understanding. But perhaps the new normal is watching the speed of the declines moving forward.
4. It Wasn’t All About Gasoline Prices
This year, the White House had entered into premature damage control ahead of a horrific print. They typically offered the same explanation: Elevated inflation is because of increasing gasoline prices.
The August CPI disproved this. Indeed, the cost of a barrel of crude oil and a gallon of gasoline has plummeted this summer.
If Texas Tea and a gallon of gas were the culprits, the headline figure would have cratered.
5. Robert Rubin Was Right
Former Treasury Secretary Robert Rubin was right when he said predicting inflation moving forward is a “fool’s game.”
“The best answer about inflation is: Who the hell knows?” he said. “In all the time I’ve been involved in markets, I have learned that trying to make judgments on short- and intermediate-term market conditions is a fool’s game.”
On that note, here is a terrific video that is must-watch viewing!
— Inverse Cramer (Not Jim Cramer) (@CramerTracker) September 13, 2022
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