Consumer price data topples premarket market gains on worries over inflation

Wall Street indexes jumped for a strong open then reverses their course on Tuesday as prices for consumer goods rose less than expected in August, suggesting that inflation may be starting to cool but still remained at high levels to worry the investors.

The consumer price index, which measures the price average of consumer goods and services, such as transportation, food, and medical care, increased 5.3% from a year earlier and 0.3% from July, the Labor Department reported.

A month ago, prices rose 0.5% from June.

Economists were expecting it to rise 5.4% year-on-year and 0.4% on the month.

Although it rose less than what was expected, the 5.3% annual increase of prices still keeps inflation at its hottest level in about 13 years.

Excluding the volatile food and energy prices, the CPI rose just 0.1% in August against the previous month and 4% year-on-year, compared to the market estimate of 0.3% and 4.2%, respectively.

Markets rallied following the release but crashed along with all the major Wall Street indexes, on worries of the highest level of inflation.

The flagship index S&P 500 dropped about 0.8%, while the tech-heavy Nasdaq and blue-chip Dow Jones slumped 117 points and 349 points, respectively.

Energy prices accounted for much of the inflation increase for the month. The energy index rose 2%, mainly due to a rise in gasoline prices by 2.8%.

Energy is up 25% from a year ago, and gasoline has surged 42% during the period.

However, excluding food and energy, August’s consumer price increase is the slowest monthly increase since February.

Federal Reserve officials have been closely monitoring the inflation but have largely said they believe this year’s burst will be temporary, caused by supply chain bottlenecks, shortages of critical products like semiconductors and heightened pandemic-related demand for goods.

They expect it will soon fade and, at some point, will drift back to normal levels.

Picture Credit: CNBC