Inflation seems to come up in every client conversation these days – rightfully so!  This week it was an extra hot topic with Thursday’s latest CPI release for September 2022.  Let’s cover some of the highlights

What do I need to know about September’s inflation report?

The September Consumer Price Index (CPI – or “CP-High” as the Dealbook newsletter aptly dubbed it today) came out on October 13 and was once again ahead of expectations.  CPI rose 8.2% year over year and 0.4% in the past month.  Gasoline, clothing, and used cars fell in the month, while virtually every other category rose meaningfully.   Core inflation (the fed’s preferred measure as it excludes more volatile items like food and energy) rose 6.6% year over year – the biggest increase since 1982. You can view the detailed report here

As we’ve discussed, CPI has a natural lag to other indicators of inflation.  But nonetheless, this reading does not show prices abating and seems to indicate that the Federal Reserve has more work to do to restore price stability (ie: more rate increases ahead as they seek to bring inflation closer to their 2% target).

How did equity markets react?

That depends on when you looked at them throughout the day on Thursday!

Pre-market, the major equity indexes were all higher – perhaps hopeful of a cooler inflation reading (that could have led to more stable rates moving forward).

Upon release of the numbers, when that hope was slashed, markets plummeted over 2% as the hotter-than-expected inflation report cemented the belief that further rate increases were seemingly inevitable.

However, that trend reversed intraday and the three major equity indexes (Dow, S&P 500, and NASQAQ) all rose over 2% by day’s end.

This rollercoaster of a day in markets is hard to fully interpret and I, like everyone else (whether they admit it or not!), cannot be sure what lead to the whipsaw day.   Some said it was due to the belief this inflation report is truly the top (we’ve heard that before but we shall see!). Others made a connection between the stabilization in British government bonds (which strengthened pound, weakened dollar, and increased stocks). Others pointed out that earnings have been relatively strong thus far this week. Or, as the New York Times perfectly described, it could be more technical in nature:

“such whipsaw moves have also simply become more common this year, as data on the U.S. economy has collided with technical factors in markets around how investors are positioned for sharp moves higher or lower, and whether they exacerbate or reduce them“

In short, it’s impossible to know what caused markets to gyrate today as they did. One thing remains certain – with inflation still running at historic levels, the path of future interest rates remains unknown and as a result, equity markets may very well continue to gyrate. Stay tuned – and stay the course!

Was the social security increase for 2023 also announced?

Yes! As we discussed here, social security payments are indexed for inflation.  That adjustment was announced today for 2023 and comes in at 8.7%, the largest increase since 1981

What about I bonds, why are they back in the news?

Inflation is still hot, but inflation-linked I Bond rates are going down. Today’s CPI figure implies that the rate on the U.S. Treasury’s Series I Savings Bond will be 6.47% starting Nov. 1—unless the Treasury decides to increase it by adding a fixed rate to the bond (which is presently at 0%). You can read more about i bonds here

We will undoubtedly be talking about inflation for years to come. But for now, you are caught up on this weeks highlights!