The US dollar soared on Tuesday after the US government reported worse-than-expected inflation data. Despite lower gasoline prices, the August consumer price index (CPI) was mostly up across the board, tanking the financial markets and lifting the greenback.
According to the Bureau of Labor Statistics (BLS), the US annual inflation rate clocked in at 8.3% in August, down from 8.5% in July. But the market consensus was 8.1%. Moreover, the core inflation rate, which strips the volatile food and energy industries, increased to 6.3% last month, up from 5.9% in July. This also topped economists’ expectations of 6.1%.
The CPI rose 0.1% month-over-month, while the core CPI climbed 0.6% from July to August.
While the energy index eased to 23.8% last month, nearly everything was up across the board. The food index surged 11.4%, new vehicles climbed 10.1%, used cars and trucks eased to 7.8%, apparel surged 5.1%, and shelter jumped 6.2%. Medical care commodities and services rose 4.1% and 5.6%, respectively. Transportation services exploded 11.3%.
“Today’s data show more progress in bringing global inflation down in the US economy. Overall, prices have been essentially flat in our country these last two months: that is welcome news for American families, with more work still to do. Gas prices are down an average of $1.30 a gallon since the beginning of the summer. This month, we saw some price increases slow from the month before at the grocery store. And real wages went up again for a second month in a row, giving hard-working families a little breathing room,” President Joe Biden said in a statement following the data release.
“It will take more time and resolve to bring inflation down, which is why we passed the Inflation Reduction Act to lower the cost of healthcare, prescription drugs and energy. And my economic plan is showing that, as we bring prices down, we are creating good paying jobs and bringing manufacturing back to America.”
In other economic data, which did not grab any of the spotlight on Tuesday, the National Federation of Independent Business (NFIB) improved to 91.8, and the IBD/TIPP Economic Optimism Index advanced to 44.7.
The financial markets tanked on the data, with the leading benchmark indexes recording triple-digit losses. This sent investors pouring into conventional save-haven assets.
Overall, any doubt that the Federal Reserve will slow down its monetary policy tightening has been extinguished by a hotter-than-expected CPI report.
The US Dollar Index (DXY), a measurement of the greenback against a basket of currencies, surged 0.86% to 109.27, from an opening of 108.33. The index is up nearly 14% year-to-date.
The US Treasury market was mostly up across the board, with the benchmark ten-year yield up 7.1 basis points to 3.433%. The one-year yield added 21.2 basis points, while the 30-year yield rose 4.4 basis points to 3.558%. The spread between the two- and ten-year yields widened to -30 basis points.
The USD/CAD currency pair rose 0.83% to 1.3094, from an opening of 1.2986, at 14:34 GMT on Tuesday. The EUR/USD dropped 0.96% to 1.0025, from an opening of 1.0122.