Illustration: Sarah Grillo/Axios
One thing is very clear about August's hotter-than-expected inflation report this morning: Investors were not expecting this.
Why it matters: Many had been banking on less aggressive Federal Reserve tightening... eventually. Tuesday's market collapse bolstered the belief that traders were mesmerized by a "sucker's rally," and are now paying the price.
Details: The S&P 500 went into free fall following this morning's release of the August CPI, finishing the day down 4.3%.
- The Nasdaq Composite fell 5.1%. Bitcoin plunged by 9.4%.
Catch up fast: Core inflation, which strips out volatile food and energy prices, rose 0.6% in August. It was expected to rise by 0.3%.
- Compared to a year ago, core inflation is now up 6.3%, a jump from the 5.9% reading in July.
Axios Macro said it best: "There's no sugar-coating it: August's inflation numbers are terrible news for everyone rooting for the economy to come in for a soft landing."
The big picture: Stock investors had largely been feeling good about things over the last three months.
- With the S&P 500 up 12% since June 16, traders woke up this morning fully expecting more signs of moderating prices.
- Falling oil and gas prices stoked hopes that we had finally reached peak inflation, and that improving supply chains would finally chip away at elevated goods and services prices.
State of play: Inflation isn't done with us...at least not yet.
- "Unpleasant surprises aplenty are found in the August Consumer Price Index," Bankrate senior economic analyst Mark Hamrick wrote in a note.
The bottom line: Underlying inflation remains high and entrenched, and in some sectors is still accelerating. It raises the odds that the Fed's tough talk on rates will drive policy for the remainder of this year.