Key Takeaways:

  • Monthly and YOY Inflation in August higher than expected;
  • The Fed will likely continue to aggressively raise rates;
  • K+B remodeling projects slowdown likely to continue.

 

By Robert Isler

Most economists were taken by surprise with the increase in the Consumer Price Index released today, causing many to adjust their thinking. The 8.3 percent YOY gain was higher than the expected 8.1 percent, as was the 0.1 percent increase compared with July. In addition, once the food and energy components were removed from the core inflation number, the increase was 0.6 percent, double what was expected.

As a result, many expect the Federal Reserve to continue its rate hikes when it meets next week. The impact on kitchen and bath remodeling will be a likely continuation of the recent project slowdowns. The continuation of rising rates and lack of confidence in the economy will continue to drive the downturn.

The recent consumer price surge means the slowdown we’ve been seeing in number and scope of K+B remodeling projects will likely continue.

And though energy prices did continue to fall in August, they were offset by gains in the cost of food, shelter and health care. Housing registered an increase of 0.7 percent, its largest month-over-month gain since January 1991. Medical care rose by the same amount with across-the-board increases.

The immediate impact of the higher-than-expected price increases is reflected in the Dow Jones Industrial Average, which closed down over 1,200 points with the NASDAQ off by over 600. Any thoughts that the recent string of gains meant the worst is behind us is now being called into question.

In addition, many expect the Federal Reserve to continue its rate hikes. When it meets next week for the next policy-setting session, experts say the Federal Reserve is likely to make a three-quarters of a point rate hike and another hike is expected in November. Federal Reserve officials, including chair Jerome Powell, have said in recent weeks that the pace of rate hikes will not slow until there is convincing evidence that core inflation is easing.