Markets are cratering not because CPI deviated 0.1% from expectations, but because sticky inflation is soaring instead of showing any signs of reduction. The Fed really has its work cut out

Actual CPI print was 0.1%, and markets being down across the board doesnt make sense. SPX down 3.2%, QQQ is down 4%, Bitcoin down 7% following the CPI numbers. Except when you look at the actual figures that make up the CPI, it paints a gloomy picture of inflation.

The baseline CPI is made up of several individual inflation components like Energy inflation, Housing, New/Used cars, Food etc. Each of these items is given a weight in consideration for the total CPI.

For instance, energy has a 7% component in the CPI. In the just released CPI numbers, energy inflation fell by 5% compared to previous months. However, it was not enough to offset the increase in other components.

Sticky components of the inflation means it is hard to bring this down easily without drastic policy changes. While energy component of inflation can be quickly brought down by lowering the price of oil and gas (supply/demand), prices of some components like shelter are not that easy to bring in control with just couple of policy changes. Shelter is a key sticky inflation component, and contributes 32% to the CPI.

It has risen by 0.7% in Aug 2022.

The Atalanta Fed publishes what is known as "sticky Inflation index. The index is currently at a 40 year high at 6.1%! The last time it was this high was waaaay back in August 1982

https://www.atlantafed.org/research/inflationproject/stickyprice.aspx

This simply means the current actions of the Fed are not proving to be enough. While gas prices have come down, prices of other essentials like shelter is soaring. This is a big jolt to the market and the current expectations are that rate hikes will continue way into 2023, while the market was earlier pricing slowing down of rate hikes towards the end of 2022.

As you can see from the AtlantaFed sticky price index, it took several steep rate hikes + a recession to bring that in control in the early 80s.