9/13/2022: August's Inflation is Higher than Expected
Overall CPI went up 0.1% MoM; Core CPI went up 0.6% MoM.
August’ CPI report is out and it doesn’t look good. Overall the price is up 0.1% from July. The energy price actually went down 5% in MoM. But the Core CPI (all items less food and energy) went up 0.6% MoM, a jump from July’s 0.3% MoM. Services CPI went up 0.6% MoM, also higher than July’s 0.4% MoM. Goldman Sachs was expecting the overall CPI to be -0.1% MoM and the Core CPI to be 0.3% MoM. Their prediction turned out to be quite off. Stock market dropped significantly after the news. Dow is down 900 points and Nasdaq is down almost 500 points.
Well, I think everyone is now expecting the Fed to be very aggressive in raising interest rates. It’s probably a matter of 0.75% or 1% raise next week. 0.5% is out of the question. The Core CPI is now rising at 6+% a year. This is really concerning and it’s too far away from the Fed’s 2% target. I wouldn’t be surprised if the rate is raised to 6% in the next few months. I hope that doesn’t happen though. It’s going to kill real estate activities. Companies with high debt load would be in big trouble. The overall business investment activity will subside because money becomes more expensive to borrow. Basically, we need to be in a proper recession to tame the inflation beast and it’s not going to be a walk in the park. We will likely see crazy volatility in the stock markets for the next few months, house prices will go down further, and the unemployment rate might start to tick up. But we will get through this eventually. My plan is to sit tight and to deploy more capital if SPY goes down to 320.