INFLATION WATCH and WALL STREET PANIC returns! And it's really stupid

On the “inflation watch” front, I saw these toplines, and figured we were still going in the right direction.

JUST IN: US inflation was 8.3% in August. That’s still way too high, but it is down slightly from 8.5% in July and 9.1% in June.

In a surprise, inflation ROSE 0.1% in August. (many expected a drop). Shelter, food and medical care went up, offsetting a 10%+ decline in gas prices

— Heather Long (@byHeatherLong) September 13, 2022

OK, not much different than what we saw in July (where inflation was flat). But Wall Street saw this and LOST THEIR FUCKING MINDS!

Stocks fell sharply on Tuesday after a key August inflation report came in hotter than expected, hurting investor optimism for cooling prices and a less aggressive Federal Reserve.

The Dow Jones Industrial Average slid 1,276.37 points, or 3.94%, to close at 31,104.97. The S&P 500 dropped 4.32% to 3,932.69, and the Nasdaq Composite sank 5.16% to end the day at 11,633.57….

The August consumer price index report showed a higher-than-expected reading for inflation. Headline inflation rose 0.1% month over month, even with falling gas prices. Core inflation rose 0.6% month over month. On a year-over-year basis, inflation was 8.3%

. Economists surveyed by Dow Jones had been expecting a decline of 0.1% for overall inflation, with a rise of 0.3% for core inflation.

The report is one of the last the Fed will see ahead of their Sept. 20-21 meeting, where the central bank is expected to deliver its third consecutive 0.75 percentage point interest rate hike to tamp down inflation. The unexpectedly high August report could lead the Fed to continue its aggressive hikes longer than some investors anticipated.

So this drop in the stock was entirely due to Wall Street expectations and then speculation of what might happen in the future. Sure seems like a system you want to trust your retirement in, right RoJo?

I’m looking at the data, and I’m confused over what the big deal is. The ”core” inflation figure that triggered the traders was 0.6%, higher than the 0.3% that registered in July. But it’s no different than the increases we saw in the 3 months before then (all between 0.6% and 0.7%), and in the Bureau of Labor Statistics’ summary, you can see a key driver of August’s core increase is due to one factor in particular.

…The shelter index continued to rise, increasing 0.7 percent in August compared to 0.5 percent in July. 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.

This “equivalent rent index” seems to have lagged the increases that we saw in home and property values in much of 2021 and early 2022. But now it’s catching up to those higher levels, while home prices are plateauing and declining as the Federal Reserve has rapidly and severely hiked interest rates.

After two years of runaway price growth, the U.S. housing market has hit a tipping point.

Home price growth has been decelerating for months now as the U.S. market cools from the pandemic frenzy. But in July, that shifted to an actual decline as the median home price fell 0.77% from June — the largest single-month decline in over 11 years.

That’s according to Black Knight’s July Mortgage Monitor report released Wednesday, which also showed home prices have declined from their peaks in more than 85% of the 50 largest U.S. housing markets. Home prices are down by more than 1% in a third of those markets, and more than one in 10 are seeing prices fall by 4% or more.

Given that the Fed is projected to raise the costs of mortgages by doubling the Fed Funds between now and early 2023, there’s little reason to think home prices will start going back up any time soon. I just hope it’s a steady leveling/decline that pares back the big jump in wealth many have seen in recent years, instead of a crash that cascades onto itself, and causes significant job loss.

The better news on the inflation front came today, with the release of the Producer Price index. This number declined for the second straight month, and the “core” increase was much less than what we saw with the CPI.

The Producer Price Index for final demand fell 0.1 percent in August, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. Final demand prices decreased 0.4 percent in July and advanced 1.0 percent in June. (See table A.) On an unadjusted basis, the index for final demand moved up 8.7 percent for the 12 months ended in August.

In August, the decrease in the index for final demand is attributable to a 1.2-percent decline in prices for final demand goods. In contrast, the index for final demand services advanced 0.4 percent.

Prices for final demand less foods, energy, and trade services moved up 0.2 percent in August following a 0.1-percent rise in July. For the 12 months ended in August, the index for final demand less foods, energy, and trade services increased 5.6 percent.

That 8.7% 12-month increase is a big decline from the 11.3% that number was at in June. And even better is that producer prices for foods didn’t change at all in August, and have only increased a total of 1.6% in the last 4 months measured – an annual rate of less than 5%, compared to the 11.4% increase we have seen for food over the last 12 months at the consumer level.

Logically, CPI should be calming in several areas in the next couple of months. Which makes me wonder why Wall Street media keeps talking about inflation “continuing to roar” and doesn’t see that things are moderating (albeit at an elevated level of prices vs what we had 18 months ago). Is it because they WANT the market to fall and fear to rise, which would hurt Democrats in November’s elections?

And why does the Fed seem hell-bent on imposing pain and crushing the economy along with inflation, instead of allowing for the soft landing that will likely happen if it does smaller rate hikes and gives time to let things sort out? I know the Masters of the Universe don’t like it when people with real jobs start making money and having more options, and they don’t care what happens to most of us (both politically and economically) as long as it maintains and/or increases their chances of being the controllers of things.

I'm frustrated at the situation, because our "inflation" feels like BS greed with record corporate profits, followed by Wall Streeters and other rich BubbleWorlders using a 1970s playbook to deal with a very different post-COVID reality in 2022.