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Core CPI Over 2% for 10 Straight Months

Zacks

Friday, September 16, 2016

Capping off a week that was rather quiet aside from a plethora of economic data that figures to be considered as the Fed decides whether of not to raise interest rates next Wednesday, the August Consumer Price Index (CPI) was released before the bell today. Headline number was +0.2%, and subtracting food & energy costs that number bumps up to +0.3%.

Year over year, the headline CPI is +1.1%. Ex-food & energy, this number is 2.3% — a notable difference. (Food and energy costs are historically volatile, so tracking longer-term inflation creep is better assisted by stripping these numbers away.) So while we’re seeing very tepid growth overall, more than half of it is a result of low gasoline prices and lower food prices.

This ex-food & energy number, by the way, matches the monthly high this year back in February. It marks the 10th straight month of a 2%+ figure. And to find a higher inflationary read, you’d have to go back to September 2008 — literally the exact month the U.S. economy crumbled into the Great Recession.

Understand this and it becomes clear why so many market participants are wringing their hands over a potential interest rate hike when Federal Reserve presidents meet next week. Inflation is beginning to show up for virtually the first time since the housing bubble popped 8 years ago. This is not insignificant information, especially seeing many analysts had already priced in at least one raise in 2016 by this point, and the first has yet to materialize.

The hawkish rhetoric has gained momentum in recent weeks, but odds are still with a non-raise this time around. Post-November’s General Election — meaning December, not November, as the presidential election happens the Tuesday following the next time the Fed gets together after next week — is the line most commonly drawn in the sand. We’ll see if anything gets in the way of a rate hike at that time.

Market futures are mixed following the CPI release, but they were all down, and much more so, prior: the S&P 500 is currently at -3 (it was -8.75), the Dow is -22 (was -65) and the Nasdaq has actually swung from -14.25 before the CPI report to +2.25 20+ minutes before the opening bell.

Mark Vickery
Senior Editor


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