Underlying inflation unexpectedly picked up in August. The culprit was higher prices for housing and travel, undercutting the chances of an outsize interest rate cut next week.
The core CPI—which excluded food and energy—increased 0.3% from July, the most in four months and 3.2% from a year ago. The three-month annualized rate advanced 2.1%, picking up from 1.6% in July.
Also released yesterday was the data on real average hourly earnings which was also higher than expected and showed an acceleration. Year over year they were up 1.3% versus the prior month’s reading of 0.7%.
The Federal Reserve has indicated that wages and employment will be the primary determinant of monetary policy.
Yesterday’s statistics lowered the probability that the Fed would cut rates by a half point next week to near zero. Prior to the releases, the markets were placing odds around 50%.
The unexpected increase in August’s CPI should have been partially expected for a myriad of reasons including that it was being measured against more benign readings, an environment that could exist for the remainder of the year. Such has been nominally discussed.
Equites opened about 1.5% lower only to reverse course to close over 1% higher, an advance powered by mega tech and NVDA. Bloomberg writes this is the first time since October 2022 that such had occurred. An obvious catalyst for the reversal was lacking.
Treasuries were higher in yield across the spectrum.
The PPI is released today, and analysts are expecting a 0.1% and 0.2% increase in the overall and core rate, respectively. Inflation is expected to rise from the previous month’s levels.
Last night the foreign markets were up. London was up 0.78%, Paris up 0.80% and Frankfurt up 1.15%. China was down 0.17%, Japan up 3.41% and Hang Seng up 0.77%.
Futures are nominally higher ahead of the PPI. The 10-year is off 4/32 to yield 3.67%.
