The much-anticipated August consumer price index CPI report released on Wednesday has heightened concerns about rising inflation.

Consumer prices rose by 0.6% MoM (Month on Month) and 3.7% YoY (Year on Year) indicating signs of rising inflation due to an increase in #oil prices, the U.S. Department of Labour reported.

However, despite an increase of 0.3%, the core CPI dropped to 4.3% from 4.7% in July. The Core CPI measure excludes prices of energy and food. The Federal Reserve closely analyses the Core Inflation data to understand the patterns of Inflation in the long term.

Let’s understand the components of CPI:
1. Shelter Inflation:
   • Shelter Inflation is one of the major components of CPI. Rents and Housing expenses constitute a significant share of 40% to the Core CPI Index contributing to the Shelter Inflation component.
   • Shelter expenses saw a moderate rise of 0.3%, while primary residence rent index rose sharply to 0.5%, marking a substantial increase of 7.8% from a year ago.
   • Although this is lower than the peak of 8.8% in April, it remains twice as high as the annual rent increases, observed in the pre-pandemic phase between 2011 and 2019.
   • The #cpi calculates housing costs based on renting; however, it overlooks an important factor. Americans who secured low mortgage rates, an average 2.5% before or during the pandemic. These people enjoy lower housing expenses and are reluctant to rent, sell or even buy new homes due to higher rates. This is leading to a shortage of homes for sale and an increase in home prices- unaccounted by the CPI
2. Auto Sector The Motor Vehicle Insurance increased by 19.1% from last year. This can impact car ownership and compel consumers to sell their vehicles to avoid higher insurance costs. Rising energy prices can affect the auto sector as well.
3. Airline Prices Another significant component of the core CPI, airline prices saw a noteworthy increase of 4.89% from last month, primarily attributed to the rising energy prices. If, energy prices further escalate, a hike in airline prices is likely

Looking at the present situation, the Federal Reserve may adopt a hawkish stance, and a potential rate hike can be expected this year. Elevated inflation and energy costs has complicated #FED’s efforts to tame inflation.

Investors are beginning to sell Small-Cap sector stocks as they believe inflation will persist for a while.

While the S&P Index gave mixed signals lately, it still hasn’t crossed the 4580-level needed to continue the bullish rally. However, it did drop to 4430 last week, closing at 4457, which is a 1.29% decrease. It might test the support level of 4330 later.

The CPI numbers are of paramount importance in the eyes of the #fed to understand how inflation is shaping the economy.

The #federalreserve is being cautious and all we can do is wait for the September meeting.