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Markets Were Generally Unfazed By The CPI Data

Underlying inflation ran at a faster than expected monthly pace in August, leaving the door open for additional interest rate hikes from the Federal Reserve.  Core consumer prices—which exclude food and energy prices—advanced 0.3% from July, the first acceleration in six months.  From a year ago, it increased 4.3%, in line with estimates and marking the smallest advance in nearly two years.

Overall inflation rose 0.6% from the prior month, the most in over a year, and 3.7% from a year ago, reflecting higher energy prices.

The CPI is one of the last major reports the Fed will see before its meeting next week, in which policymakers are largely expected to hold rates steady.

After the data was released, the odds of further Fed tightening by year end rose nominally.  November’s odds stand at 52% and December’s are at 64%.  These are sentiment indicators and can change radically based upon the data.  The Fed has made it abundantly clear all monetary policy decisions will be data centric.

As inferred above, the markets were generally unfazed by the data as it was not a disaster.  It is largely expected inflation will increase over the next several months.  The question is by how much. 

Today both the PPI and retail sales are released.  How will the data be interpreted?

Last night the foreign markets were up.  London was up 1.17%, Paris up 0.39% and Frankfurt up 0.20%.  China was up 0.11%, Japan up 1.41%  and Hang Seng up 0.21%. NASDAQ and Dow futures are up 0.40% and 0.28%, respectively on the belief that the Fed is close to an end on this monetary tightening cycle.   The 10-year is up 2/32 to yield 4.26%

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Ken Engelke

Chief Economic Strategist Managing Director

The views expressed herein are those of Kent Engelke and do not necessarily reflect those of Capitol Securities Management. Any opinions expressed are statements of judgment on this date and are subject to certain risks and uncertainties which could cause actual results to differ materially from those currently anticipated or projected. Any future dividends, interest, yields and event dates listed may be subject to change. An investor cannot invest in an index, and its returns are not indicative of the performance of any specific investment. Past performance is not indicative of future results. This material is being provided for informational purposes only. Any information should not be deemed a recommendation to buy, hold or sell any security. Certain information has been obtained from third-party sources we consider reliable, but we do not guarantee that such information is accurate or complete. This report is not a complete description of the securities, markets, or developments referred to in this material and does not include all available data necessary for making an investment decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. If you would like to unsubscribe from this e-mail distribution, please reply to this e-mail and indicate that you wish to unsubscribe in your response.