August inflation data came in way worse than expected

Expectations: Inflation to come in much lower than the previous month — taking the S&P 500 to a better place.

Reality: Inflation came in higher than expected in the August Consumer Price Index (CPI) report — sending markets lower yesterday.

Here are the August numbers:

• CPI increased 8.3% from a year ago (8.5% in July, 9.1% in June).
• Core CPI — which excludes energy and food prices — increased 6.3% from a year ago (up from 5.9% in July).

What’s driving the numbers:

1/ Gasoline prices fell sharply (10.6% in August) — but not low enough to offset other price increases.

2/ Food prices continue rising (0.8% in August) — but expect price relief soon from lower gas prices, as transport is the highest cost of food.

3/ “Rent keeps marching higher” — “That is the most stubborn of everything the Fed is fighting at this point,” per LPL Financial’s chief equity strategist (CNBC).

It hurts to be a consumer, business or investor (so everyone?)

The average household spends $460 more per month on the same goods and services as last year. Businesses are struggling with high costs. And investors felt the damage, with the S&P 500 falling 4%.

• This could set the stage for another large 0.75 percentage point interest rate increase next week.
• The report was so bad, markets even priced in a 16% chance yesterday that the Fed would raise rates by a full one percentage point.

On average, September is the worst month for the market — and this month isn’t proving to be much different.