Inflation is hotter than expected, gold colder than hoped
The annual CPI decelerated in August but came in higher than expected. Bets on a more hawkish Fed increased, while in the case of gold, they decreased.
The CPI increased 0.1% in August after being flat in July, according to the Bureau of Labor Statistics. It doesn"t seem to be a huge increase, but let"s note that it occurred despite a 10.6-percent decline in the gasoline index. Without plunging gas prices, inflation would be much higher because of the broad-based monthly item increase.
It"s not any better on an annual basis. The overall CPI increased 8.3% for the 12 months ending August, as the chart below shows. It"s a smaller figure than the 8.5-percent rise from July, but higher than expected . The core CPI rose 6.3%, which means an acceleration from July, when it increased 5.9%. Thus, although the overall index has peaked, the core CPI is once again on the rise.
The yields on Treasuries increased, with 10-year real interest rates climbing to almost 1% for the first time since the end of 2018, as the chart below shows. Meanwhile, stock markets plunged, with the S&P 500 and Dow Jones falling 3% and 2.6%, respectively.What does the hot CPI report mean for the gold market? Well, it strengthened expectations of a hawkish Fed and boosted bond yields.
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