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Cooler CPI Gives Hope to Early Market

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Tuesday, September 14, 2021

Some good news on the “inflation watch” front: following last week’s higher-than-expected Producer Price Index (PPI), which indicated inflation creep was here to stay, this morning’s Consumer Price Index (CPI) — basically the other side of this inflation read’s coin — came in lower than expected for August: +0.3% on headline, beneath the +0.4% expected and the +0.5% reported for July.

This is the first economic print we’ve seen in recent memory that’s not pointing directly to higher inflation hitting the U.S. economy. If we strip out volatile food & energy costs, the “core” CPI read, we see growth barely moving the needle last month: +0.1%, below the +0.3% anticipated and +0.3% reported the previous month. This is the lowest monthly core CPI figure since February of this year.

If we pull back to look at the year-over-year numbers, headline CPI is +5.3% — 10 basis points below July’s year over year, which was the highest CPI growth we’d seen in 13 years. Core year over year dropped to +4.0%, lower than the +4.3% we saw for July. For some historical comparison, June’s +4.5% was the biggest core CPI year-over-year figure we had seen in 30 years.

What all this means in early trading is that investors may feel a sense of reprieve that the Fed will have to move quickly to sop up this runaway inflation we’ve been seeing. Maybe Fed Chair Powell, who has held firm that inflation in our economy was “transitory” and was likely to abate once supply-demand challenges were worked out. Used Cars, which had shot up 32% earlier this year, were -1.5% last month. Air fares dipped -0.1%.

However, this also may depict a setback in Services during August, as the Delta variant swept through the South like the forest fires out West (or the hurricane flooding in the East). Meaning this read may have less to do with lowering costs and more to do with a temporary economic setback caused by yet another wave of the coronavirus, at least regionally. Now that vaccinations are at last gaining favor in certain sectors, we may see CPI numbers back up where they had been.

In any case, pre-market futures reversed on this release: from wallowing in the red, post-CPI we saw the Dow jump to +140 points, the S&P 500 +20 and the Nasdaq +65. Since then, we have seen these numbers cool a bit, but remain firmly in the green. Next week is the next meeting for the Federal Open Market Committee (FOMC), and investors had been looking toward Powell’s press conference as the time we hear about a tapering timeline. Perhaps now they’ll reconsider.

At 11am PT today, Apple (AAPL - Free Report) is expected to unveil its latest iPhone — the 13. These events, basically yearly as they now are, are not quite the scintillating occurrences that move Apple’s share price and thus the market. Part of this is because Apple is now so gigantic it’s hard to make those big jumps any longer. Similarly for the iPhone itself — it’s such a universal tool these days, there are few surprises even possible to present. Apple has underperformed the S&P 500 year to date.

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