Hot US Aug CPI seen cementing aggressive FOMC

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NEW YORK, Sept. 13 (Reuters) - Monthly U.S. consumer prices rose unexpectedly in August as the drop in petrol prices was offset by gains in rents and food costs.

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The consumer price index rose 0.1% last month after remaining unchanged in July, the Labor Department said on Tuesday. Economists polled by Reuters had forecast a 0.1% drop in CPI.

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In the 12 months since August, CPI grew by 8.3 per cent, lower than July's 8.5 per cent growth. The annual CPI peaked at 9.1% in June, the biggest gain since November 1981.

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MARKET REACTION

Stocks: S&P 500 futures fall sharply, down 2.2% Bonds: Yields on 10-year Treasury notes rose 8.3 basis points to 3.445%; Two years of U.S. Treasury Yield

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The good news is that the "peak narrative" is on hold because July was the highest print. The bad news is that Upside Miss Cements has seen a third 75 bps hike next week.

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With last week and yesterday's rally, the market risk reward that came into this report was anyway slightly lower, regardless of whether we found a report that was online or a little.

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We know that the components of shelter, rent, and services are generally more sticky and remain elevated for a long time but what we are seeing in the underlying fundamentals continues to soften.

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Unless we get the inflation print, not just one, but two, three, maybe four, steadily moving downwards, only then can we call a trend and the Fed.

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