What's going on?

Consumer prices (e.g. housing, medical costs, fuel � things people typically spend their money on) in the US rose 1.1% in August versus one year ago. That�s right, we�re talking about inflation. The headline figure wasn�t that interesting, but within the data there were some important tidbits for investors.

What does this mean?

Energy prices (e.g. fuel for a car) fell almost 10% versus a year ago and food prices were flat. Since food and, especially, energy prices are so volatile, economists often strip out these factors to get a sense of the real, stickier inflation trend, which is referred to as �core� inflation. �Core� inflation in August rose 2.3%, which tied February for the month with the highest rate since 2008.

Why should I care?

For the markets: Higher inflation would probably be bad for bonds and, possibly, some types of stocks.
Bonds pay a fixed amount of interest per year and, so, if prices start rising, the money that a bond pays its investor will be worth less in the future (i.e. the money will buy fewer goods and services because the cost of those things will have gone up). Stocks that pay high dividends can be similarly affected, except dividends can be increased, especially if the products the company sells are being sold at higher prices.


The bigger picture: It�s far from clear that inflation is rising substantially � but it�s a risk worth keeping an eye on.
This is just one month of data and the inflation rate was only modestly above economists� expectations. Also, this is just one measure of inflation: other measures have shown less inflation. Inflation in the US is by no means definitely going to increase substantially. But investors are starting to pay closer attention (like this famous bond investor).