What happened

Mastercard (MA 0.15%) stock dropped on Tuesday morning, falling as much as 3% at around 10:50 a.m. ET. The stock price rebounded slightly, but was still down about 2.6% at 2:40 p.m. ET, trading at $329 per share.

The decline was roughly in line with the Dow Jones Industrial Average, which was down roughly 1,005 points at 2:40 p.m. ET, or 3.1%, while the S&P 500 was down 3.4% and the Nasdaq was off 4.3%.

So what

Mastercard, the second-largest credit card company and payment processor, was down on Tuesday due to the sell-off caused by the August consumer price index report (CPI). The CPI, which is an indicator of inflation, rose 0.1% over July. Year over year, it was up 8.3% in August. This was slightly lower than the 8.5% year-over-year increase in July, but it was above the 8.1% increase that analysts expected.

Also, the core CPI, which does not include energy or food prices, rose 0.6% in August over July and was 6.3% higher than the previous August. Gas prices were down 10.6% in the month, but that decline was more than offset by price increases in shelter, food, and medical care, according to the Bureau of Labor Statistics.

With inflation still high, the Federal Reserve Board is expected to remain hawkish in its strategy to reduce inflation by raising interest rates. That is not a newsflash to anyone, as the Fed has repeatedly stated as much. But for Mastercard, a company that makes more fee revenue the more people spend using its cards, a recession or slower growing economy is less than ideal.

Now what

The market reacted strongly to the August CPI report and as a growth stock, Mastercard was swept up in the negative sentiment. But overall, Mastercard has fared pretty well through this bear market, down only 8% year to date. In the last quarter, revenue was up 21% year over year, mainly due to a recovery in travel spending and cross-border volume. 

Also, Mastercard's SpendingPulse survey, which came out on Monday, calls for a 7.1% increase in holiday season retail sales, so that may be a positive sign.

Mastercard has maintained its high margins and its price-to-earnings (P/E) ratio is 34, which is down from 56 a year ago and closer to its averages over the last five years. Overall, Mastercard, because of its massive advantage as one of two major credit card providers, remains a good investment.