October 12, 2022

The September inflation report comes tomorrow morning.

Let’s take a look at what stocks have done since the last inflation report.

It’s been straight down.  The report itself sent stocks into a 4.8% slide (peak to trough) for the day, on September 13.

This was all on the view that it would force the Fed to do more (more rate hikes).   Indeed, they’ve certainly threatened to.

So what was so bad about the last inflation report?

First, the headline number (this was data from the month of August) was up just 0.1% compared to the prior month.  At that monthly pace, inflation would be running just a bit over 1% annualized.  That’s very, very tame inflation.

But it was the uptick in the inflation number excluding the effects of food and energy that spooked markets.  That ticked up from 5.9% to 6.3%, year-over-year.

It was shelter that accounted for about 40 percent of that increase.

Other drivers of that increase in the core inflation number:  healthcare costs, new vehicles, used cars and trucks, and household furnishings.

Let’s take a look at what we know about those components, for clues on what tomorrow’s number might look like.

If we look at the recent data released by Kelly Blue Book on new car prices in September:  It was the first decline in five months.

What about used cars?  The Manheim used car index showed a 3% decline in used car prices in September compared to August.

For healthcare, the U.S. Health Care Price Index (which measures cash price paid for healthcare) declined in September.

Remember, shelter was the hottest component in the last report.  What did shelter prices do last month?  Realtor.com says median home prices peaked in June.  And the Apartment List National Rent Report says the national month-over-month rents were down by 0.2% (chart below).