The Consumer Price Index (CPI) rose 8.3% in August as compared to prices one year ago. This was down from 8.5% in July and 9.1% in June, but that’s not even close to the whole story.
Traders had hoped that the August numbers would show more signs that the interest rate increases from the Fed had actually done something to tame inflation. In some areas of the economy inflation grew, dashing any hopes that the Fed would slow down their interest rate hikes.
As a result, the DJIA dropped almost 4%, the S&P was down more than 4%, and the Nasdaq was down over 5% yesterday. This was the worst day in the stock market in over two years.
Investors had hoped that the Fed would only raise their benchmark Fed Funds rate next week by half a point. Many now think that it will be raised a full percentage point.
If this occurs, it will be the first time the Federal Reserve Bank has been this aggressive since 1981. Investors are worried that this might push the economy into a broader and longer lasting recession.
The worst parts of the inflation news included
Core CPI Increases
This measure of inflation that excludes energy and food prices increased in August to 6.3% up from 5.9% in both June and July. This is a broader reflection of how average prices are moving, and a predictor of the future.
It means that if the last few interest rate hikes didn’t do anything, then the Fed may need to be even more aggressive.
Many Energy Prices Are Increasing
While gasoline prices have dropped 26% since June, other energy prices haven’t. Electricity has increased 15.8% in the last year. Natural gas has increased as well meaning that the average home heating bill will go up 17.2% this winter.
Energy prices are watched closely because there are no substitutes for this product. As such, it means that the average family will have less money to spend on other goods and services.
If you’ve done any shopping in the past month, you know that food prices continue to increase with no end in sight.
Let me leave you with this.
It’s pretty obvious that we’re in this mess for the long haul. If any of you thought this was some sort of a blip or something that would magically come to an end, you’re sadly mistaken.
What the markets did yesterday was tell everyone that this is a real problem that isn’t going away anytime soon. How bad it will get is anyone’s guess, but all Entrepreneurs must manage their businesses differently.
Watch your numbers like a hawk. Your monthly financial statements have never been more important.
Know where your break-even points are and exactly how much product needs to be sold to maintain your lifestyle. We aren’t operating charities. If your business doesn’t provide you with a reasonable lifestyle, your spouse might force you to get a real job.
Don’t be afraid to raise your prices. If you lose a deal because someone is undercutting you, they’ll probably be the first competitor to file bankruptcy, and you don’t want to join them.
Take care of yourself. These are scary times. Recognize how difficult they are and maintain your sanity.
More than anything, know that you aren’t in this alone. We’re right there with you. If you have any questions or just need to talk, you know my number.
We’re all going to get through this. Let’s get through it together.
Accounting Solutions Ltd. stands ready to complete our mission and purpose of protecting you, your family, and your business. Whether you need Employee Retention Credits, M&A Due Diligence, Payroll Services, or Accounting and Tax Work, you have but to ask. I’m here and I remain,
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