Markets did not like the August CPI increase over the number from July, which remained essentially unchanged, though a significant decline had been predicted. The Bureau of Labor Statistics just published the CPI for August and provided along with it a detailed breakdown of the CPI into over 300 categories and subcategories of price increases and decreases for all items and separately for food and energy. The index was up 8.3% year over year and only slightly less than the 8.5% year-over-year increase for July. Extrapolating the implications of that increase for Fed policy, markets now expect the Fed to engage in a steady process of aggressive rate increases.
Interestingly, there were important differences in the pattern of price increases and decreases for August as compared with July. The easiest data to examine are the breakdowns of the two major components of energy data — Energy Services and Fuel Oil and Other Fuels — which are shown in Table 1 below.
There are two major categories and then up to 5 subcategories, for a total of 13 different categories, each with its own inflation estimate. The first two sets of columns for June–July and July–August show the number of categories with negative and positive increases. Not surprisingly, we see that price declines dominated the data, with 11 in August but only 2 showed declines in July, with the pattern totally reversed for positive price movements. Eleven categories displayed price increases in July while only 2 did in August. The average percentage declines ranged from 3.8% to 10.4% in August, confirming what we experienced happening to oil and gasoline prices. Only 2 categories had price increases in August compared with 11 in July.
As we might expect, the picture with respect to food prices is different from that for energy, as Table 2 demonstrates. In July, there was substantial upward pressure on prices, with 96 categories registering increases and only 19 showing declines, while just 3 showed no change. The pattern continued in August, with only 26 categories showing some moderation while 85 categories saw continued upward price pressures. Press reports and anecdotal evidence strongly suggested that food price increases were hitting consumers hard, and there was little moderation in August, despite Fed policy tightening.
Outside of food and energy, the inflation picture is not much better, as Table 3 illustrates.
Price pressures appear to have increased, with positive movements seen in 142 categories in August compared with 122 in July. The movement appears to have reversed the trend in a significant number of the categories that had previously experienced price declines.
So, while price pressures have moderated significantly in the energy area, the same is not true in either food or all other categories, where inflation clearly seems to be a persistent problem. This is the kind of evidence that the FOMC is faced with as it attempts to address seemingly broad-based and persistent inflation at its meeting on Tuesday and Wednesday this week. The data strongly suggests a significant policy move will be on the table.
Robert Eisenbeis, Ph.D.
Vice Chairman & Chief Monetary Economist
Email | Bio
Links to other websites or electronic media controlled or offered by Third-Parties (non-affiliates of Cumberland Advisors) are provided only as a reference and courtesy to our users. Cumberland Advisors has no control over such websites, does not recommend or endorse any opinions, ideas, products, information, or content of such sites, and makes no warranties as to the accuracy, completeness, reliability or suitability of their content. Cumberland Advisors hereby disclaims liability for any information, materials, products or services posted or offered at any of the Third-Party websites. The Third-Party may have a privacy and/or security policy different from that of Cumberland Advisors. Therefore, please refer to the specific privacy and security policies of the Third-Party when accessing their websites.
Cumberland Advisors Market Commentaries offer insights and analysis on upcoming, important economic issues that potentially impact global financial markets. Our team shares their thinking on global economic developments, market news and other factors that often influence investment opportunities and strategies.
