Did August inflation actually surprise anyone? Only narrowly. Headline CPI rose 0.4% on the month, matching consensus exactly, and the unadjusted annual rate held at 3.4%, also in line. The miss sat in core, which rose 0.3% against a 0.2% forecast after 0.2% in July. Over twelve months, core inflation fell to 2.4% from 2.5%. The hawkish content of Friday’s release amounts to one tenth of a point on a single monthly reading.

So why did hike odds jump toward 90%? Because the Warsh Fed meets on 15-16 September and had already been handed Thursday’s producer price report, which pushed the annual PPI rate to 5.4%. CME futures had carried roughly 70% odds of a hike into Friday morning; by the close they sat near 90%. A committee looking for permission to move does not need a large surprise, only an absence of excuses.

What was driving the headline? Gasoline. The index rose 3.9% in August and accounted for over a third of the all-items increase, per the Bureau of Labor Statistics. Energy gained 2.1% on the month and is up 16.3% over the year, with gasoline alone up 27.4%. Shelter added 0.3%, food 0.1%.

Then why did equities rally? Because the cause of the hot print was unwinding as the print landed. WTI crude fell $2.43 to $100.05, reversing part of the Strait of Hormuz risk premium that had carried Brent above $105 a day earlier. The S&P 500 closed up 0.86% at 7,656, the Nasdaq Composite up 0.96% at 26,333 and the Dow up 0.98% at 52,657, ending four straight losing sessions.

What did the bond market do? Almost nothing. The 10-year finished at 4.96% on Treasury’s daily curve, one basis point above Thursday. The repricing had already happened on Thursday, when the yield jumped twelve basis points to 4.95%. By Friday the hike was in the price and CPI had nothing left to add.

What else landed? Treasury sold $22 billion of 30-year bonds on Thursday at a high yield of 5.308%, nine basis points above August’s 5.216%, on a bid-to-cover of 2.61 versus 2.39 last month and 79.5% indirect participation. The higher yield was the clearing price, not evidence of a buyers’ strike. The EIA reported commercial crude stocks down 0.4 million barrels for the week ending 4 September to 424.1 million, a far shallower draw than the prior week’s 4.45 million.

Attribution should stay honest. Michigan sentiment fell to 47.8 against a 51.0 forecast and one-year inflation expectations climbed to 4.6%, neither of which argues for owning equities. Cheaper oil and an oversold tape did the work.

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