What a day in the stock market. Nasdaq plummeted 5,16%. That`s 632,84 points. Dow Jones and S&P 500 were also sharply down, followed by cryptos like Bitcoin. They all went down because the annual inflation rate in the US eased for a second straight month to 8,3% in August of 2022.
This is the lowest number in four months, so why did investors have so much panic? The rate is down from 8,5% in July. But it`s down from 9,1% in June, so, it’s on the way down. For all I know, it will continue the same path, and probably end up in the opposite direction; deflation in the long run.
The energy index increased by 23,8% (32,9% in July). Gasoline increased 25,6% (44% in July). Fuel oil increased 68,8% (75,9% in July).
Natural gas increased 33% vs 30,5%, and electricity was at the highest since August 1981, at 15,8%. Prices for food rose by 11,4%, and that is the most since 1979. The shelter is up 6,2%, which is the most since 1984.
CPI, which excludes volatile energy and food prices, increased 6,3% in a year. This is the most since March, and up markedly from 5,9% in June and July.
The Federal Reserve has done a lot to push down inflation because inflation over time could have dramatic consequences for consumers. The Fed has been hawkish when it comes to interest rate hikes this year.
They try to make it expensive for consumers to borrow, and the interest rate hikes will affect consumers’ interest rates like credit cards, loans, and mortgage rates.
CPI measures changes in the cost of consumer goods and is a key indicator of just how bad inflation is.
Economists anticipated a lower CPI in August, but the index rose 0,1% from the previous month and 8,3 on an annual basis. More rate hikes from the Fed will force consumers to change their lifestyles in the future.
The Fed looks at CPI when deciding whether to raise rates or not. Experts claim that we must expect the Fed to continue to be very aggressive when it comes to rate hikes. So, fasten your seat belts.
So far this year, the central bank has already raised rates by 225 basis points, and many investors are waiting for another 75 basis point rate hike at their meeting next week.
The cost of living is increasing. Higher electricity bills, food, gasoline, and gas prices are making it difficult for many, and it isn`t easy to borrow either. The cost of borrowing is also increasing. On the other side; the rate on your saving account is also increasing.
Experts predict that we could see many more months of rampant inflation.
The Fed funds futures are pricing in a 36% chance that the bank will raise its benchmark rate by a full percentage point. Nomura forecasted a 100 basis point hike in September.
Investors don`t like Fed`s hawkishness, and they are worried that the Fed`s inflation fight will bring in a recession. On the other hand; the Fed is also ramping up the unwinding of its balance sheet to $95 billion per month.