Why the recent (bad) inflation report hasn’t scared investors

  (photo credit: INGIMAGE)
(photo credit: INGIMAGE)

A fresh US report reminded us that the fight against inflation will not be easy. In August, the US CPI added 0.6% m/m, accelerating the annual rate to 3.7%. The latest figure was above average forecasts of 3.6% and marked an acceleration from 3.0% in June and 3.2% in July. However, the market responded to this with relative calm. Let’s figure out why.

The core price index, excluding energy and food, added 0.3% m/m after two months of 0.2% growth. The annual rate of increase, meanwhile, slowed from 4.7% to 4.3%. While the annual rate continues to fall, it remains heightened. Core inflation has risen 1.8% over the past six months. 

The acceleration in monthly core inflation was influenced by a 40-month-long uptick in housing charges (0.3%), a jump in transport prices (2%), accelerating car insurance prices (2.4% m/m), higher prices for new cars (0.3%), clothing (0.2%), and healthcare products (0.6%).

About half of the increase in prices is explained by the rise in fuel prices. Since the end of August, oil prices have renewed their upward momentum, and this could be a problem for the monetary authorities in the coming months.

Understanding that the inflation will proceed to speed up supported securities of the financial sector, but negatively affected the shares of technological companies. The largest software producer Oracle Corporation set up a record here and fell by 13.50% after publishing their quarterly report and forecasts for the current quarter, both of which disappointed the investors.

Speaking of tech giants, Apple held its annual unveiling of new products on Tuesday, including the iPhone 15 and the all-new Apple Watch. After which the Apple stock went… down, by 1.71%.

Apple Stock Chart (Credit: TradingView)
Apple Stock Chart (Credit: TradingView)

Nevertheless, and interestingly enough, the fresh release only seems to have reinforced the markets in the idea that the Fed is done with rate hikes. The odds of keeping the rate on hold in November rose from 53% to 57% a week earlier, despite the recent uptick in inflation data.

Considering that the slowdown in the growth of the core index was expected, only the monthly rate, which increased to 0.3%, could be disconcerting. This may be the reason behind considering the data release neutral and unlikely to shift expectations on the Fed's actions in September. Analysts believe that the regulator will take a pause and keep the rate unchanged next week.

The stock market responded to the release with increased volatility in the S&P 500 futures aka ES futures, which initially fell, but has already recovered most of the losses.

This article was written in cooperation with TradingView