Core Inflation Steady, But It’s The Eye Of The Storm

The consumer price index overshot expectations in September, as the CPI inflation rate returned to a 13-year high. The core inflation rate was unchanged at 4%. The S&P 500 opened higher in Wednesday’s stock market action as Treasury yields retreated.


The CPI rose 0.4% from the prior month and 5.4% vs. a year ago, the Labor Department said Tuesday. The annual CPI inflation matched the highest since 2008 after reaching the same level in June and July. Wall Street economists expected a 0.3% monthly rise and 5.3% annual rate.

The core CPI, which strips out volatile food and energy categories, rose a moderate 0.2% from August, as expected. Core CPI inflation hit a 29-year high of 4.5% in June.

Supply constraints and high demand, fueled by vaccines and and fiscal stimulus, had combined to stir up the biggest broad-based inflation rise in a generation. Still, it’s too soon to know how much of the recent inflation pressure will prove transitory. Industries that are struggling to keep up with demand and facing increases in their own input costs, including labor and transportation costs, appear to be passing along price hikes.

Amid accelerating wage growth, surging energy costs and rising rent, economists now expect CPI inflation to hit new multi-decade highs later this year.

S&P 500, Treasury Yields Reaction To CPI Report

The Dow Jones was flat in morning trade following the CPI inflation report. The S&P 500 rose 0.15% and the Nasdaq climbed 0.55%.

The 10-year Treasury yield, which briefly rose to 1.6% before the open, reversed to trade down 3 basis points at 1.55%. Treasury yields have been a big drag on stocks in the past few weeks.

After slipping the past three sessions, the S&P 500 closed Tuesday 4.1% below its record Sept. 2 high, but up 15.8% year-to-date. The Dow closed 3.5% below it Aug. 16 record high and up 12.3% for the year. The Nasdaq composite, whose tech stocks are more sensitive to higher interest rates, is 5.9% below its Sept. 7 record high and up 12.2% this year.

Although inflation is now far above the Federal Reserve’s 2% target, policymakers are willing to look through a transitory rise in prices. The expected Nov. 3 announcement that the Fed will begin to taper asset purchases reflects policymakers’ assessment that the labor market has made sufficient improvement to begin unwinding extraordinary accommodation.

Minutes from the Fed’s Sept. 21-22 meeting, which will be released at 2 p.m. ET today, should provide some specifics about the Fed’s plan for gradually reducing its $120 billion in monthly asset purchases. Fed chief Jerome Powell has said there’s a consensus to end those purchases by the middle of 2022. Once those purchases are done, rate hikes may be on the table, depending how inflation develops.

CPI Inflation Report Details

Prices for used cars and trucks, which had surged close to 30% in recent months, eased 0.7%.

Demand for used cars has gotten a boost amid the global chip shortage that has snagged production for new autos. Prices for new vehicles rose 1.3%, as recent strength continued.

Prices for food away from home rose 0.5% in September, while the price of food consumed at home jumped 1.2% last month.

Meanwhile, shelter prices rose 0.4% in September, as owner’s equivalent rent rose 0.4%.

Energy prices rose 1.3% on the month and 24.8% from a year ago.


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