The Return? US inflation rises faster than expected.
US inflation rose to 3.7% in the month of August, well above expectations
The US CPI (consumer price index) came out yesterday morning, and the numbers were higher than expected. Wall street expected an increase from 3.2 to 3.6%, it rose to 3.7% which does not seem like much, but it is, it can be the determining price for thousands of gallons of diesel for trucks or construction vehicles.
The reason this is a big deal is because we have not seen inflation rise this fast since last year when it hit a record high of 9.1% (or perhaps some speculated the government fudged with the numbers and it was more like 15-16%, which is possible). But the main thing that drove this surge in inflation is, energy, specifically gasoline.
Gasoline is responsible for an astonishing 50%, of the 0.6% inflation increase in the month of August. And diesel is the next culprit of the increase, albeit as a much smaller percentage than gasoline. It is not secret that gasoline prices have been rising since at least mid-July for most of the country, the average gas price in Mid-July (gas prices source) for the entire country was $3.67. Now, it’s 3.858 (current gas prices), an increase of almost 20 cents in 2 months. Which is substantiable. And the main reasons behind this increase is 1. OPEC extending their oil cuts by 1 million barrels per day, which is forecasted to have severe consequences this winter. 2. Biden has largely stopped dumping oil into the market from the SPR (strategic petroleum reserve). The price of oil has also driven prices much higher.
But looking at the chart, many of you can see that it was not everything that increased, in fact used car sales (which had been a driver of inflation last year) declined by a significant amount, coupled with housing and other sectors of the economy.
Markets have responded weirdly to the data, one would expect that if inflation ticked up, it means the FED would likely increase rates, which in turn would make investors sell and the market goes down. But that is not what happened for most of the day, it was fairly modest. Perhaps they are calling the bluff of the FED in not increasing rates, or they see something else that most of the public does not see. We cannot be sure but one thing we can be sure is, the inflation crisis is not over, and perhaps it could be entering its next phase.