Originally Posted: 9/13/2022 8:30 AM ET
Updated: 9/13/2022 9:09 AM ET
The Consumer Price Index report has been long awaited by traders and investors. Whether you’re buying penny stocks or higher-priced large-cap stocks, inflation data stemming from the CPI report is becoming the cornerstone for speculation regarding monetary policy.
In the stock market today, onlookers waited patiently for details to show a glimmer of hope that inflation in 2022 is slowing. This article breaks down the latest CPI Report live and will highlight key takeaways for you to digest and use. But first, let’s cover some basics for those who may be new to the stock market or economic data in general.
What Is CPI Inflation Data & The CPI Report?
CPI stands for Consumer Price Index. According to the U.S. Bureau of Labor Statistics, the Consumer Price Index measures “the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. Indexes are available for the U.S. and various geographic areas. Average price data for select utility, automotive fuel, and food items are also available.”
According to the U.S. Bureau of Labor Statistics, “The CPIs are based on prices of food, clothing, shelter, fuels, transportation, doctors’ and dentists’ services, drugs, and other goods and services that people buy for day-to-day living. Prices are collected each month in 75 urban areas across the country from about 6,000 housing units and approximately 22,000 retail establishments (department stores, supermarkets, hospitals, filling stations, and other types of stores and service establishments).”
Unadjusted VS Seasonally Adjusted
The Bureau also breaks down the importance of unadjusted VS seasonally adjusted and who each might matter more to:
“For analyzing short-term price trends in the economy, seasonally adjusted changes are usually preferred since they eliminate the effect of changes that normally occur at the same time and in about the same magnitude every year-such as price movements resulting from weather events, production cycles, model changeovers, holidays, and sales. This allows data users to focus on changes that are not typical for the time of year.
The unadjusted data are of primary interest to consumers concerned about the prices they actually pay. Unadjusted data are also used extensively for escalation purposes. Many collective bargaining contract agreements and pension plans, for example, tie compensation changes to the Consumer Price Index before adjustment for seasonal variation. BLS advises against the use of seasonally adjusted data in escalation agreements because seasonally adjusted series are revised annually.”
July CPI Inflation Data
In July, the Consumer Price Index for All Urban Consumers was unchanged, seasonally adjusted. It rose 8.5% over the trailing 12 months, not seasonally adjusted. The index for all items minus food and energy jumped 0.3% in July, seasonally adjusted.
Meanwhile, the energy index fell 4.6% over the month but increased 32.9% for its trailing 12 months. This was a smaller increase than June’s 41.6% increase for the period. The food index rose 1.1% over the month and 10.9% for its trailing 12 months. This was the most significant 12-month increase since the period ending May 1979.
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- CPI is expected to come in at 8.1% for the trailing 12 months.
- Core CPI is anticipated to rise 0.3% or 6.1% year-over-year based on Dow Jones estimates.
Many times, it’s the Core CPI figures the market studies more. It measures the changes in the price of goods and services, minus food and energy.
August 2022 CPI Inflation Results
The Consumer Price Index for All Urban Consumers (CPI-U) rose 0.1% in August on a seasonally adjusted basis after being unchanged in July, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 8.3% before seasonal adjustment.
Most significant increases: shelter, food, and medical care indexes.
These increases were offset mainly by a 10.6% decline in the gasoline index. The food index continued to rise, increasing 0.8% over the month as the food at home index rose 0.7%. The energy index fell 5.0% over the month as the gasoline index declined, but the electricity and natural gas indexes increased.
August CPI Key Take Aways:
- Over the last 12 months, the all items index increased 8.3% before seasonal adjustment.
- The index for all items less food and energy rose 0.6% in August, a more considerable
increase than in July. - The all items index increased 8.3% for the 12 months ending August, a smaller
figure than the 8.5% increase for the period ending July. - The energy index increased 23.8% for the 12 months ending August, a smaller increase than the 32.9% increase for the period ending July.
- The food index increased 11.4% over the last year, the largest 12-month increase since the period ending May 1979.
- The index for all items less food and energy (Core CPI) jumped 6.3% over the last 12 months and a more considerable increase than July’s 5.9%
CPI Data: Food
The Food Index jumped the smallest monthly amount since December 2021, coming in at 0.8% in August. Food at home rose 0.7%, with all six major grocery store food group indexes increasing. “Other food at home” jumped 1.1%.
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The energy index dropped 5% in August after falling 4.6% in July. Gas dropped 10.6% over the month, but electricity index data rose by 1.5%. This is the fourth consecutive month of increasing at least 1.3%. The index for natural gas also climbed over the month and rose 3.5% after dropping 3.6% in July. Over the last 12 months, the energy index rose 23.8%, the gasoline index increased 25.6%, the fuel oil index jumped 68.8%, and the index for electricity rose 15.8%. According to the Bureau, this was the most significant 12-month increase since August 1981.
The Stock Market Today
Following August’s CPI inflation data report, the stock market sold off. CPI and Core CPI came in higher than expectations and, as a result, raised concerns over Fed policy and decisions for the upcoming Federal Reserve Meeting later this month.
Major ETFs, including the S&P 500 (NYSEARCA:SPY) and Nasdaq; (NASDAQ:QQQ), went into a freefall. The SPY hit lows of $402 while the Q’s fell back to the $302 level. As markets digest the rest of the data, it will be essential to see how they weigh it against recent Fed commentary.
Fed Chair Jerome Powell recently discussed his stance on inflation and whether or not he feels it is lessening after July’s read-out.
“While the lower inflation readings for July are welcome, a single month’s improvement falls far short of what the Committee will need to see before we are confident that inflation is moving down.”
August CPI Takeaways & Where To Focus Next
It would appear that his caution was warranted as the August CPI report showed a different story from July. Certainly, the significant increases in shelter, food, and medical care don’t bode well for a conversation about lightening the burden of the average consumer. With electricity prices also climbing, this will likely weigh on the inflation outlook. Other notable increases included household furnishings and operations (+9.9%), medical care (+5.4%), new vehicles (+10.1%), and used cars and trucks (+7.8%).
Where should investors focus next? There are still several economic events in the stock market this week, including tomorrow’s PPI data. According to the U.S. Bureau of Labor Statistics, the Producer Price Index or PPI measures “the average change over time in the selling prices received by domestic producers for their output. The prices included in the PPI are from the first commercial transaction for many products and some services.”
Now that CPI data and Core CPI are out, investors may look directly to next week. September 20-21 is set for the next FOMC meeting, where new policy updates will be given, and the market is pricing in at least a 75 bps rise in rates.
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