Consumer price rise unexpectedly in August, sending stock market tumblingby Sara Floyd Hello
A hotter-than-expected inflation report sent the stock market tumbling on Tuesday.
More than 1,200 points the Dow Jones Industrial Average fell, which amounted to a nearly 4% drop, making it the index’s worst day since June 2020. Its worst day of 2022 the S&P 500, meanwhile the index to which many 401(k)s are pegged — dropped more than 4%. More than 5% of the tech-heavy Nasdaq plummeted.
In August inflation data was released on Tuesday which revealed that prices rose slightly, to decide on another interest rate hike next week for U.S. households worsening the cost woes as the Federal Reserve readies.
Whether inflation has peaked the data calls into question.
According to the Bureau of Labour Statistics, On a monthly basis, the consumer price index rose 0.1% in August, inching upward from the flat month-to-month movement in July.
According to the bureau, in August the consumer price index, or CPI, rose 8.3% over the past year, a slight slowdown from 8.5% in July.
The cost of gas continued to fall significantly in August by dropping 10.6%. Gasoline prices are one major bright spot to show the CPI continued.
Prices rose broadly outside of the energy sector. On a monthly basis food prices rose 0.8%, slowing from their monthly increase in July but remaining highly elevated.
At a faster rate in August than they had over the month prior measures of the consumer prices for shelter, new vehicles and apparel all rose.
The data arrives little before Federal Reserve officials meet to determine what investors expect to be another borrowing cost increase aimed at fighting inflation more than a week later.
Jefferies economists Aneta Markowska and Thomas Simons said in a note, that “In terms of Fed expectations, today’s inflation report is a game changer”. “In fact, both energy and food prices are moderating, but core pressure remains very stubborn. In core the July slowdown now looks like a one-off, rather than the beginning of a trend.”
In recent months the Fed has instituted a series of aggressive interest rate hikes as it tries to slash price increases by slowing the economy and choking off demand. But the U.S. into an economic downturn and putting millions out of work the approach risks tipping.
The rate increases appear to have slowed key sectors of the economy, for instance, sending mortgage rates higher and slowing the construction of new homes.
According to data released by the Bureau of Labour Statistics in early September, other indicators suggest the U.S. economy continues to hum. In August U.S. hiring fell from its breakneck pace but remained robust, with the economy adding 315,000 jobs and the unemployment rate rising to 3.7% as more people sought work.
During a news conference in Washington, D.C., July 27, 2022 Federal Reserve Board Chairman Jerome Powell speaks.
Speaking at a conference held by the conservative-leaning Cato Institute, Fed Chair Jerome Powell, said on Thursday that the central bank must act “forthrightly, strongly” to dial back inflation, later this month leading many economists to expect another 75-basis point interest rate hike from the central bank.
Scott Schuh, an economics professor at the University of West Virginia said that the Fed is performing a “delicate balancing act”. “To avoid the Fed is raising rates but trying to increase the unemployment rate.”
He added, “To expect the inflation rate it seems somewhat reasonable to continue to come down for the next few months and quarters”. In some areas of the economy prices have already fallen significantly.
For a gallon of gas the national average price stood at $3.72 on Monday, having fallen well below a peak of $5.01 in mid-June, according to AAA.
According to data released by the New York Federal Reserve on Monday consumer expectations for inflation have fallen significantly too.
A New York Federal Reserve survey showed that the median of consumer responses in August showed that they expect inflation to fall to 5.7% in one year and 2.8% in three years. In July, those figures were down from 6.2% and 3.2%, respectively.
Created on Sep 16th 2022 04:18. Viewed 77 times.