Market expectations of a collapse of inflation did not materialize following the release of the latest U.S. Consumer Price Index (CPI) numbers early Tuesday morning.

The high inflation numbers came in more than expected and the stock market sell-off was sharp and swift.

Simpler’s traders are staying on top of how this inflation data release, and more to come, affects market movement.

High inflation numbers cause stock market sell-off

Premarket trading Tuesday, where Dow futures were up more than 200 points, sharply reversed on the release of CPI numbers before the general session opened. Dow futures were down almost 600 points at the opening bell.

The stock market sell-off continued after the bell with the Dow dropping more than 740 points in the first hour, the Nasdaq losing more than 410 points, and the S&P falling by more than 110 points. The quick losses erased much of the relief rally over the previous four consecutive days of gains across the board.

The harsh sell-off was fueled by CPI numbers that are showing inflation holding at 40-year high levels.

According to the U.S. Bureau of Labor Statistics, data showed inflation increased 8.3% over the last 12 months, and .1 percent in August. Increases in shelter, food, and medical care largely fueled the monthly increase.

The energy index increased 23.8% for the 12 months ending August, a smaller increase than the 32.9-percent increase for the period ending July, according to the official data. Lower gasoline prices contributed in part to this lower, yet still high, number. The food index increased 11.4 percent over the last year, the largest 12-month increase since May, 1979.

Embedded within the overall CPI inflation numbers was inflation data which eliminates food and energy results. This core number rose .6% month–over-month which is a larger increase than in July. Core inflation increased by 6.3% over the last year.

What follows high CPI numbers?

Traders have to consider any federal monetary moves when searching for profit potential in this volatile stock market.

The Federal Reserve (Fed) has stated its goal is to get core inflation down to 2% annually and will continue its hawkish stance on raising benchmark interest rates until that goal is met.

Core inflation now stands at more than three times the Fed mandate for acceptable inflation rates. The federal funds interest rate is in a range between 2.25% to 2.50% following increases in benchmark interest rates so far this year.

The Fed meets Wednesday and Thursday where it is expected to go ahead with its plan to raise benchmark interest rates by .75%. This would be the fifth raise in interest rates this year.

Traders in this inflation-influenced market must also plan for more data releases this week.
On Wednesday the U.S. Producer Price Index (PPI) follows CPI numbers and then the retail sales report is released on Thursday. PPI numbers are expected to align with CPI data as PPI tracks wholesale cost changes – the price of goods sold by manufacturers. (CPI measures consumer costs for high-value staples such as housing, gasoline, utilities, and food.)