Well, so much for the cooler than expected CPI as many were positioning for on the long end. September CPI hit 3.7% annually, above the 3.6% forecast, while core inflation rose 0.3% versus 0.2% expected.

I like to peek at how the prediction markets react first and you can see the blue line spike on the chart below for what some are now positioning again for - a rate hike of .25 basis points.
Price changes over last year, per September CPI report:
  • Fuel Oil: +74.0% 
  • Gasoline: +34.2% 
  • Gas Utilities: +5.0% 
  • Electricity: +4.4% 
  • Overall CPI: +3.7% 
  • Food away from home: +3.5% 
  • Apparel: +3.4% 
  • Shelter: +3.2% 
  • Transportation: +2.7% 
  • Medical Care: +2.5% 
  • Food at home: +1.8% 
  • New Cars: +0.6% 
  •  Used Cars: -1.5%
Energy did most of the damage: fuel oil is up 74% from a year ago (not good news with winter approaching) and gasoline is up 34.2%, with gas utilities up 5% and electricity up 4.4% behind them. Strip those out and much of the rest of the basket is running at or below the headline. 
Food away from home is up 3.5%, apparel 3.4%, shelter 3.2%, transportation 2.7%, medical care 2.5%, and groceries only 1.8%. New cars are barely higher at 0.6%, and used cars are actually down 1.5%. So the pain at the pump and on the heating bill is real, but it isn’t yet spreading evenly through everything else.

For fixed income investors, that’s the question to watch: whether energy is a one-time shock that fades, or whether it leaks into shelter, services, and food and keeps the Fed and Treasury yields under pressure.