Inflation Drops in August

Today is Fed Day. We’ll find out at 2 pm what the FOMC has decided. Janet Yellen will also host a post-meeting press conference. Today, it’s all about the language.

We got a surprising inflation report this morning. The government reported that consumer prices fell 0.2% last month. Economists were expecting no change.

Don’t think this was due to lower gasoline prices. If we look at the “core rate.” which excludes food and energy prices, then consumer prices were flat last month. Expectations were for an increase of 0.2%.

This is the lowest seasonally-adjusted core CPI in more than four years.

The S&P 500 still hasn’t topped its high from March 2000 when we adjust for inflation (with dividends, it has). Adjusting for the latest CPI data, the S&P 500 would have to make it to 2,126.48 to make a new all-time inflation-adjusted high. That’s about another 6.3% from where we are now.

Interestingly, the S&P 500’s all-time inflation-adjusted high isn’t from March 24, 2000, which had been the peak in nominal terms. The S&P 500 closed that day at 1,527.46. Rather, the inflation-adjusted peak came the previous day, on March 23, when the index closed at 1,527.35. That small one-day increase in stock prices was actually less than inflation.

Posted by on September 17th, 2014 at 10:35 am


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