Stock market falls over 4%, as core inflation nears record; overall inflation at 8.3%

Stock market falls over 4%, as core inflation nears record; overall inflation at 8.3%

The stock market fell over 4% Tuesday, the most since 2020, as core inflation rose in August to nearly a 40-year-high. Rising core inflation offset a monthly fall in gas prices to keep overall inflation at 8.3% for the past year. CNN reports:

US inflation ticked back up in August, despite plunging gas prices, according to data from the Bureau of Labor Statistics released Tuesday.

On a monthly basis, consumer prices rose 0.1% from July, according to the Consumer Price Index, which measures a basket of consumer goods and services. Economists had projected that inflation would fall from July to August by 0.1%, after holding steady at 0% growth from June to July.

Annual inflation eased for the second-straight month but also remained stubbornly high, with prices up 8.3% year on year, a slowdown from the 8.5% gain in July and the 40-year high of 9.1% in June. The last time the headline CPI rate declined in consecutive months was the first part of 2020.

Core CPI, which strips out the more volatile categories like food and gasoline, measured 6.3% in August, up from 6.2% in July. The month-on-month gain of 0.6% was double what economists had expected.

US stocks tumbled on the news, with the Dow shedding more than 800 points by midday. Investors worry that the Federal Reserve will have to take more drastic action to combat high inflation. A prolonged period of historic rate hikes could do serious damage to the US economy.

Inflation is much higher in the U.S. than in many other countries. The U.S. inflation rate is 8.3%, and wholesale price inflation has reached double digits in the U.S. By contrast, in Japan, the inflation rate is only 2.6%. In Switzerland, it’s 3.5%.

If the Fed does tighten monetary policy enough to get inflation under control, that could plunge the U.S. into a steep recession, the way tight monetary policy triggered a recession back in 1981-82. America’s economy is already fragile — the U.S. economy shrank in the first quarter of 2022, even as the economy grew in nations like Germany, which were harmed worse than the U.S. by the war in Ukraine. The Atlanta Federal Reserve Bank estimates that the economy shrank by 1% in the second quarter of 2022, after falling by 1.6% in the first quarter of 2022. The shrinking economy reflected a huge rise in America’s trade deficit. In the first quarter of 2022, American exports decreased by 9.6%, while imports grew by 17.7%; U.S. productivity dropped at a 7.5% annual rate, the most since 1947.

The Fed will have to tighten monetary policy enough to offset Joe Biden’s expansionary fiscal policy, which has increased the inflation rate. Biden’s big spending has fueled inflation, according to even Democratic economists like Larry Summers and Obama advisor Steven Rattner. As Rattner noted in the New York Times, Biden has spent “an unprecedented amount” of taxpayer money, which resulted in “too much money chasing too few goods.” Even progressive media like Vox recognize that Biden’s stimulus package “worsened inflation.”

In March, Biden signed an across-the-board increase in federal spending that will increase inflation even further. Last May, Biden proposed a record $6 trillion budget that “would push federal spending to its highest sustained levels since World War II” as a share of our economy, reported the New York Times. The Biden administration itself forecast budget deficits at more than $1 trillion for at least the next decade if his budget plan were adopted.

To deal with the high inflation of the Biden era, Senator Majority Leader Chuck Schumer (D-NY) suggested a tax increase. But raising taxes would also likely shrink the economy and deepen the coming recession that many economists predict.

Biden’s proposed “Build Back Better” plan would also lead to more inflation, according to economists across the political spectrum. Former Congressional Budget Office Director Doug Elmendorf said it will “push up” inflation. The Committee for a Responsible Federal Budget’s Marc Goldwein said it would create “inflationary pressures.” Bank of America’s Ethan Harris said it will “create even more price pressure.”

The U.S. economy has recently underperformed many European economies, a shift from the Trump era, when the U.S. economy outperformed Europe, especially during the pandemic year of 2020, when Britain, France and Italy experienced much sharper economic declines than the U.S. The U.S. economy shrank 3.5% in 2020. The economy shrank much more in Europe: 7.9% in France, 9.9% in the United Kingdom, and 8.9% in Italy.

Hans Bader

Hans Bader

Hans Bader practices law in Washington, D.C. After studying economics and history at the University of Virginia and law at Harvard, he practiced civil-rights, international-trade, and constitutional law. He also once worked in the Education Department. Hans writes for and has appeared on C-SPAN’s “Washington Journal.” Contact him at


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