1. Overall CPI Accelerates: Overall CPI rose 0.6% month-over-month, in line with economists' expectations, and 3.7% year-over-year, accelerating from 3.4% in the previous month. More than half of the monthly increase came from gasoline, whose price surged 9.1%.
2. Core CPI Exceeds Expectations: Core CPI rose 0.3% month-over-month, exceeding market expectations. The year-over-year increase accelerated to 2.6%, the fastest pace since June. Increases were widespread, including entertainment, used cars, airfares, and healthcare.
3. AI and Tariff Effects: Large increases in some categories reflect both the AI effect and the impact of tariffs. Year-over-year, computer and software prices rose 9.7% and 28.4% respectively, both record highs. Toys rose 6.6% year-over-year, the largest increase since 1988.
4. Real Wages Shrink: Inflation continues to hit workers. Today's data means that real average hourly wages fell 0.7% last month, the largest drop since May. Real income has shrunk for six consecutive months, the longest losing streak since the cost of living surged from 2021-2023.
5. The probability of a rate hike has surged: Following the data release, the likelihood of a Fed rate hike within two weeks has skyrocketed, with the market fully anticipating two more rate hikes by the end of January next year.
