Hello dear hustlers!
Inflation can be a tricky concept to grasp, especially when we're faced with the August 2023 Consumer Price Index (CPI) report, showing a significant 3.7% year-over-year increase in prices.
In this newsletter, we'll break down the key findings in a detailed yet beginner-friendly way to help you understand what's happening with prices.
So what exactly is the CPI?
Why Did Prices Go Up?
In August, prices increased by 0.6%, marking the most substantial monthly increase this year. This pushed the yearly increase to 3.7%. But what caused this jump?
Well, one major reason was the skyrocketing gasoline prices, which surged by a whopping 10.6% in August.
This had a ripple effect, making everything else more expensive too. However, here's the silver lining: this gasoline price surge will likely be temporary. It's mainly due to the cost of crude oil, which is used to make gasoline. And the good news is that gasoline prices are already starting to decrease, which suggests that prices should stabilize soon.
Looking Beyond Gasoline
Now, let's dive into another important number called the "core" CPI.
This number takes out things that tend to swing a lot in price, like energy and food, to give us a clearer picture of overall inflation.
In August, the core CPI increased by 0.3%, which resulted in an annual rate of 4.3%.
This might be a bit less than what we saw in July, but don't let it cause too much concern. Economists believe it's just a minor hiccup, not a major shift in the broader trend.
Housing's Role
A significant factor contributing to the core CPI increase in August was housing costs. However, there's no need to fret about rent skyrocketing forever.
The rise in rent prices has slowed down in the past year, but it usually takes some time for these trends to show up in the data.
Here is a more detailed comparison of the CPI year-to-date:
The CPI increased 3.7% in August 2023, compared to 2.9% in August 2022.
The food index increased 6.6% in August 2023, compared to 5.9% in August 2022.
The energy index increased 23.2% in August 2023, compared to 15.1% in August 2022.
The shelter index increased 5.6% in August 2023, compared to 5.0% in August 2022.
The Global Inflation Puzzle
Inflation isn't just a local issue; it's a puzzle with global pieces. When the pandemic hit, it disrupted supply chains and created a surge in demand as economies reopened.
This led to an increase in prices. On top of that, Russia's actions in Ukraine added even more complexity, causing prices to rise for essential items like food and energy.
Additionally, a strong job market resulted in higher wages, which, in turn, pushed up prices, especially in industries with lots of workers.
A Light at the End of the Tunnel
The good news is that these chaotic factors are starting to settle down. Wages are still relatively high but are gradually decreasing, and the job market is stabilizing. The supply chain problems that contributed to price hikes are slowly being resolved.
What to Watch in the Coming Months
In addition to the factors mentioned above, there are a few other things to watch in the coming months:
1. The Federal Reserve's Monetary Policy: The Fed is expected to continue raising interest rates to control inflation. While this is essential for price stability, it could hurt economic growth and corporate earnings.
2. The War in Ukraine: The ongoing war in Ukraine is causing uncertainty in the global economy. It could lead to higher energy prices and supply chain disruptions, affecting prices and economic stability.
3. The Global Economy: The global economy is slowing down, and this could also weigh on the US stock market. Economic slowdowns can affect corporate profits and stock prices.
What's on the Horizon
Investors will be keeping a close eye on the next CPI report, set to be released on October 12, 2023. If the CPI continues to rise, it could prompt the Federal Reserve to take more aggressive action to raise interest rates. This, in turn, could further impact the stock market.
Another critical aspect to monitor is the upcoming earnings season, which starts in late October. If corporate earnings start to decline, it could add more pressure on stock prices.
In conclusion, the latest CPI report indicates that inflation remains a concern in the US economy, which could weigh on the stock market in the near term. Investors should exercise caution and closely follow the next CPI report and earnings season for further insights.
And that's a wrap on our weekly newsletter!
This is Zain from Team Inspired Analyst
-Signing off
Disclaimer: This is not financial advice or recommendation for any investment. The content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.