Consumer Price Index Report for September 2022: Where are we Going?

Staff Writer: Julian Cassady

Email: jcassady@umassd.edu

Disclaimer: This article is not financial advice

For information on what the Consumer Price Index (CPI) is, go here to my article on the CPI report for March.

The Bureau of Labor Statistics (BLS) just released the CPI data for the month of September on October 13th.

Based on the data provided, the BLS determined that the year-over-year increase in inflation for all consumer items averages at +8.2%, which is only .1% more than the expected increase of 8.1% since September 2021.

The table below shows the range of items used in determining overall inflation.

(https://www.bls.gov/news.release/cpi.nr0.htm)

The last column of the data table shows the year-over-year increases in each category. Among the items, it’s important to note that gas utility services and fuel oil have dramatically increased in price: going up by 33.1% and 58.1% respectively.

Among these categories, medical care commodities and apparel have gone up the least, increasing by 3.7% and 5.5% since last year.

This might be why your favorite clothing retailers haven’t marked up prices as sharply as other consumer goods like food and automobiles.

Even if you haven’t been paying attention to the news releases of CPI, you may have noticed that gas prices have gone down since earlier this year.

The data table above shows that inflation has been settling down in the energy category for the last few months which is promising for supply chains, transportation, and the average American.

Importantly, the average increase in inflation of all items on the CPI from August is only up .4% after August’s increase of .1% from July.

This may be an indication that inflation is tapering off for the time being and may continue decreasing through the holiday season into 2023.

Another key takeaway is that the prices of regular consumer goods have cooled down, while the price of services continues to skyrocket.

Financial markets reacted with immense volatility upon the CPI data’s release.

The S&P500 index ($SPY) dropped a staggering 2.56% the morning of the announcement on October 13th.

That morning the price dropped to $349 per share and throughout the day it rebounded back up to $367 per share.

$SPY’s price action is representative of investors not knowing what to make of the CPI data, although it was only a bit worse than expected the inflation rising 8.2% is still worthy of concern.

Data presented in the CPI report caused a divergence in market sentiment between Bullish (positive) and Bearish (negative).

The volatility continued the following trading days, with the index rising and falling by more than 2% on the 14th and 17th of October.

Regular price movements for $SPY are usually between 0.3%-1% intraday.

This chart shows the $SPY performance from October 12th to October 18th:

(https://finance.yahoo.com/quote/SPY/)

Typically, increased volatility is associated with greater risk.

It’s alarming that market indexes like $SPY are trading with such high volatility because they are highly regarded as being virtually risk-free.

Following the CPI report is the earnings season for many companies. Businesses like Netflix, Tesla, DoorDash, and Microsoft are all reporting their Q3 2022 earnings throughout the next two months.

Investors have their eyes set on some of these pivotal companies, with their upcoming performances being another strong indicator of how the general economy is running.

Positive sentiment is strong after big banks like Goldman Sachs and Bank of America report stellar earnings, leading investors to believe that we aren’t yet in a financial crisis.

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