To The Moon

The August CPI made the market focused since the beginning of the month, as the risk-on mode back again, investors wish the inflation peaked and slightly falling back. But it didn't...

Over the last 12 months, the all items index increased 8.3% YoY in August on a seasonally adjusted basis, beat the market consensus of 8.1%, slightly less than July's 8.5%. From a MoM perspective, CPI increased 0.1% month-on-month, higher than the market consensus of -0.1%, and July's 0% too.

The core CPI increased 6.3% YoY in August on a seasonally adjusted basis, higher than the market consensus of 6.1%, higher than July's 5.9%; From a MoM perspective, CPI increased 0.6% month-on-month, higher than the market consensus of 0.3%.

US CPI YoY

Why the market expect inflation to slow down?

Because oil prices fell in August.

The inflation is mainly caused by high oil prices, than transmitted to the whole supply chain through raw materials. Then, Fed's interest rate increasing affect more industries.

Also, Russia and Ukraine conflicts contributed to the oil prices. Since the market get used to it, the market has been pricing-in the end of the war.

Anyway, a 9.1% CPI might be the peak, but it didn't decline as fast as we expected.

Which segments contributes the surprised inflation?

Let's take from segments.

Increases in the shelter, food, and medical care indexes were the largest of many contributors to the broad-based monthly all items increase. These increases were mostly offset by a 10.6-percent decline in the gasoline index. The food index continued to rise, increasing 0.8 percent over the month as the food at home index rose 0.7 percent. The energy index fell 5.0 percent over the month as the gasoline index declined, but the electricity and natural gas indexes increased.

The shelter index continued to rise, increasing 0.7 percent in August compared to 0.5 percent in July, mainly due to the rent. The rent index rose 0.7 percent in August as did the owners' equivalent rent index. The index for lodging away from home rose 0.1 percent over the month after declining in June and July mainly rent and house price changes. It is commonly believed that Fed's interest rate increasing has increased the mortgage rate, which makes more residents choose to rent.

The food index increased 0.8 percent in August, the smallest monthly increase in that index since December 2021. In fact, it is still influenced by supply and demand, espcially the weather. The food away from home index rose 0.9 percent in August after rising 0.7 percent in July.The index for full service meals increased 0.8 percent and the index for limited service meals increased 0.7 percent over the month.

The medical care index rose 0.7 percent in August after rising 0.4 percent in July as major medical care component indexes continued to increase. It was a bit surprised. The index for hospital services increased 0.7 percent over the month, while the index for prescription drugs increased 0.4 percent. The index for physicians' services rose 0.2 percent in August. We believe there are two reasons, One is the salary increase of medical staff, and the other is the price increase of medical equipment.

In addition, natural gas and electricity services increased on a month-on-month basis, which beat the consensus. Since the United States suffering from ultimately hot this August, it is normal that the electricity more expensive.

Generally speaking, increases were mostly offset by a 10.6-percent decline in the gasoline index, but the electricity and natural gas indexes increased has burdened the whole index. 

When CPI will slow down?

According to historical chart, Last October has a ghigher base, it might show some easeness this one. In other words, September still suffers.

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