US Inflation Improved Strongly: How Will It Impact the Market?
US inflation in August
According to data provided by the US Bureau of Labor Statistics, the US Consumer Price Index (or the inflation index) rose 0.4% in August 2017 compared with a 0.1% rise in July 2017. This inflation figure beat the market’s expectations of a 0.3% rise.
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Core inflation, which excludes volatile food and energy components, rose 0.2% in August. On a yearly basis, the Consumer Price Index rose nearly 1.9%, which beat the market expectation of 1.8%. Core inflation rose 1.7% YoY (year-over-year) in August, which beat the market expectation of a 1.6% rise.
The inflation index was mainly due to the rise in energy (XLE), food, and gasoline prices. The energy index rose 2.8% and the gasoline index rose to 6.3%. The food index rose marginally in that month.
Will it impact the S&P 500 Index?
The inflation index is one of the most important indicators for markets (SPY) and economies (QQQ) (VFINX). When the inflation index improves, it strengthens market confidence, as it indicates that the economy is getting stronger. Inflation is also one of the major parameters driving the Fed’s rate hike decisions.
The stronger inflation figure is improving investors’ confidence that the Fed will continue its gradual rate hike process in the near future. However, in the September 2017 meeting, the Fed decided to leave the rate unchanged and will start its balance sheet unwinding process in October. Fed chair Janet Yellen is expecting that these steps will help the economy to recover faster.
In the next part of this series, we’ll analyze the performance of the Eurozone Sentix investor confidence in September 2017.