Spooked: Inflation is scaring investors... again

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"It's not what you don't know that gets you in trouble, it's what you know that just ain't so". Those words from Mark Twain were relevant again yesterday as markets digested the latest inflation data. Investors were expecting inflation in August to follow the good news in July and continue to cool off. Instead, consumer prices actually rose 0.1% relative to July and core inflation, which strips out energy and food, rose 0.6% in the month.

That rise caught investors off guard, as higher inflation gives the Fed a stronger incentive to keep raising interest rates, sending US stocks (S&P 500 Index) down more than 4% yesterday. As visualized above, that was the worst day of the year so far and you have to go back to the highly volatile 2020 to find a sharper one-day decline for US equities.

A silver lining

There was some good news out in the report — average gas prices across the country were down 26% since June. Unfortunately, the savings you make at the gas station are likely to go towards your groceries. Food prices jumped again, meaning that they are up 11.4% on the year, the sharpest rise since 1979. With every inflation report that comes and goes, Costco's famous $1.50 hot dogs just look better and better.

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