Despite some of the key factors behind surging inflation easing slightly, many prices continue to go up and markets are not happy. Yesterday’s slump on Wall Street was triggered by a mixture of investor jitters and the fact that food, house and medical costs continue to rise.
The Vix measure of equity market volatility triggered a warning sign before the latest US inflation numbers, as it had been rising at the same time the market had been going up. Typically, the Vix would be flat or in decline during a rising market.
Russ Mould, investment director at AJ Bell, said: “That showed investors were already on edge before the US inflation numbers came out. With the 8.3% number for August higher than the 8.1% expected by economists, investors took fright and we saw an almighty sell-off on the markets, including a 5% decline in the tech-heavy Nasdaq index.
“One might look at the headline rate and say it’s a positive, being lower than July’s 8.5%. Furthermore, petrol prices have been falling which will benefit consumers and businesses with large transport costs. However, there are still plenty of price pressures elsewhere that are causing stress.
“There is a similar story with the latest UK inflation figures – the headline 9.9% rate for August is below July’s 10.1% figure, thanks to falling petrol prices. But other prices, including food, keep going up.
“The current situation means interest rates are likely to keep climbing as central banks try to tame inflation. It also means there remains a lot of uncertainty over corporate profits. We’ve seen quite a few companies disappoint the market with downgraded earnings guidance, and if there is more bad news to come on this front then share prices will stay under pressure.
“The FTSE 100 fell 0.7% to 7,332, with only four stocks in positive territory: Pershing Square, B&M, Kingfisher and Meggitt. Asset managers, utilities and energy companies were the key culprits for dragging the market down.”