A closely-tracked measure of US consumer price inflation climbed more than expected in January, according to data released on Wednesday that is likely to ratchet up expectations of faster US interest rate rises this year.
The core consumer price index, which excludes volatile food and energy prices, showed prices were 1.8 per cent higher in January than the same month last year. While that is unchanged from the rate reported in December, the figure came in ahead of consensus expectations of a dip to 1.7 per cent.
Meanwhile, the headline index came in at an annual rate of 2.1 per cent growth, also unchanged from December but stronger than the 1.9 per cent analysts had forecast.
Wednesday’s inflation report has taken on an outsized significance after recent strong wage growth data prompted investors raise their expectations for US rate rises this year and roiled global bond and equity markets.
US stock-index futures tumbled after the release of the report. S&P 500 futures reversed a 0.5 per cent gain to trade 1.2 per cent lower, according to Reuters data.
The US dollar index climbed 0.32 per cent to 89.996, from 89.7 beforehand. The 10-year Treasury yield advanced to 2.8621 per cent, from 2.82 per cent. Yields move in the opposite direction of prices.
“This is a strong number,” said Luke Bartholomew, a strategist at Aberdeen Standard Investments. “There’s a risk that this could pour fuel on the fire of last week’s market sell-off.”
Inflation has stubbornly remained below the Fed’s objective in recent years despite steady economic growth and an unemployment rate that is at a 17-year low.
However Fed officials have repeatedly said they expect the inflation weakness to be mostly transitory and that was one reason why the central bank lifted its benchmark rate three times last year. The Fed has projected another trio of quarter point rate rises for both 2018 and 2019.
In addition to the inflation data, investors also digested a weaker-than-expected retail sales report. Control retail sales, a key gauge that strips out volatile items, were flat last month, badly missing estimates of a 0.4 per cent rise.
Analysts at Capital Economics dismissed the drop, saying it “isn’t a huge concern” and attributed it in part to a the high number of flu cases last month.
“[W]ith jobs growth still strong, consumer confidence at an unusually high level and the recent tax cuts providing a one-off boost to disposable incomes this month, the near-term prospects for consumer spending remain fairly bright,” they said.