Gas Prices Jumped 9.1% in 1 Month, and CPI Inflation Hit 3.7%. Here’s What It Means for Consumer Stocks.

Gas prices surged 9.1% in a single month, while the overall Consumer Price Index (CPI) rose to 3.7%. This steep inflation data, released on October 14, paints a concerning picture for consumer stocks. The September CPI increased 0.6% seasonally adjusted, marking a year-over-year jump of 3.7%. Gasoline prices alone accounted for nearly half of this inflation surge, reflecting the impact of higher oil prices amid U.S.-Iran tensions.

While economists anticipated this 0.6% monthly increase, the core inflation figure - which excludes food and energy - surprised many. Core CPI rose 0.3% in September and 2.6% year-over-year, exceeding expectations by 0.1%. Sonu Varghese, Carson Group's Chief Macro Strategist, noted that investors are constantly caught off guard by this broad-based inflation.

Consumer staples, essential items like food and toiletries, are typically less affected by inflation. As a result, these stocks might outperform during periods of rising inflation. The State Street Consumer Staples Select Sector SPDR ETF (XLP) rose nearly 1.2% by 11:56 a.m. ET, a 9.7% gain year-to-date. Meanwhile, the likelihood of a Federal Reserve interest rate hike at their October meeting surged from 22% to nearly 44%, according to the CME Group's FedWatch tool.

Higher interest rates aim to curb inflation but can hurt consumer stocks in the short term by increasing borrowing costs. This could reduce consumers' purchasing power, potentially impacting the performance of consumer stocks. However, investor interest in safer assets like U.S. Treasury bonds may grow, especially when bond yields climb to 5% to 6%. Despite this, some consumer stocks with strong dividend yields might not seem as appealing due to the current high-yield bond environment.