My Thoughts on the August CPI Report

The September CPI Report just came out today morning, and it could have major implications for the Fed’s rate decision next week.

What the CPI Report Told Us

August’s CPI report showed an increase of inflation by 0.4% MoM, up from July’s 0.2% uptick. Core CPI was also up 0.3%, up from 0.2% last month. Overall, Core CPI stands at 3.1% YoY, which still puts us steadily above the Fed’s 2% long term target.

How the Market Reacted

While the reports were negative, stocks rose across almost all sectors at the time this post is being written.

My Thoughts

The reaction we received from the market did not have as much to do with the CPI report as it did with unemployment. Even though the reports were adverse, unemployment appears to be the bigger issue. In his last speech, Jerome Powell opened the door to a rate cut by referencing the Fed’s shift in focus to account for the labor market, not just inflation data, when making its rate decisions in the near term. Not only has the labor market been suffering, but after the drastic cut in job creation estimates, we received an even bigger reevaluation from the BLS, with an estimated 911,000 fewer jobs created from March 2024 to March 2025 than previously thought. This tells us that issues were persistent going back to the end of Joe Biden’s presidency.

Since the latest unemployment claims report today was worse than anticipated, this brings up the possibility of stagflation. It’s not the time to sound the alarm, but I have concerns over the recent data. If you asked me a month ago, I would’ve said a rate cut is not warranted, as I looked at inflation as the bigger concern. But now, after this unemployment report, the BLS’s drastic cut in job estimates, and especially a positive PPI report (expectations were an increase of 0.7%, it ended up decreasing by 0.1%), a small rate cut may be the right course of action. The market looks as though it has the same expectation.
The Fed obviously needs to tread carefully with how a cut could affect inflation, but as I stated before, the labor market is in much worse shape right now.

I would love to hear your thoughts in the comments! Should there be a cut, and what are your thoughts on the latest data?

Disclaimer:

This blog post is for educational and informational purposes only. It is not financial advice. I am not a licensed financial advisor, and nothing in this post should be interpreted as a recommendation to buy or sell any securities. Trading involves risk, and results are not guaranteed. Past performance is not indicative of future results. Always do your own research and consult with a licensed financial professional before making any investment decisions.