The much-awaited consumer price index (CPI) reading for January more than lived up to its billing, jumping by the fastest annual rate in four decades. Wall Street ultimately sold off on the news, but only after a few hours of waffling.
The Labor Department said Thursday that consumer prices rose by a whopping 7.5% annually in January, easily exceeding economists’ estimates of 7.2% – the sharpest such increase since February 1982.
The headline number was driven by steeply higher prices for food and energy, but even “core” CPI, which backs out groceries and gasoline, was up 6.0% annually.
That in turn heightened expectations of a more aggressive approach from the Federal Reserve to tamp down inflation.
“The odds of a 50-basis point hike jumped to around 50/50 and the yield on the 10-year Treasury is now trading around 2%,” says Brian Price, head of investment management for independent broker-dealer Commonwealth Financial Network. “Investors may want to buckle up. It could be a rough ride for risk assets until inflationary data starts to abate, and I expect that it will, as we move through the year.”
However, Bill Adams, chief economist for Comerica Bank, notes that while price gains continued to overshoot the Fed’s target last month, fundamental drivers of inflation are beginning to improve.
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“Remember, a big part of the surge in prices was from shortages, and the economy is making big strides to reduce shortages,” he says. “Businesses made a huge inventory build in the fourth quarter of last year, and surveys (ISM, NFIB) show that businesses continued to grow inventories, worked through order backlogs, and see less supplier delivery delays in January.
“Over time this will show up in inflation, but it wasn’t enough to help in January.”
A little more encouraging was the latest unemployment-benefits data, which showed 223,000 filings for the week ended Feb. 5, below 230,000 expected.
Stocks finished lower but hardly got there in a straight line; they opened well in the red, then flirted with gains an hour later before their legs gave out for the rest of the day. The Nasdaq Composite (-2.1% to 14,185) led the way lower, helped by sizable declines in its largest components, Apple (AAPL, -2.4%) and Microsoft (MSFT, -2.8%). The S&P 500 was off 1.8% to 4,504, and the Dow declined 1.5% to 35,241.
Other news in the stock market today:
- The small-cap Russell 2000 sank 1.6% to 2,051.
- U.S. crude futures rose nearly 0.3% to end at $89.88 per barrel.
- Gold futures posted a marginal …….