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United States consumer prices jump 0.5% in January

15 February 2018

Stocks on Wall Street opened lower but steadily climbed through the session after the initial shock of the big jump in monthly inflation was digested.

Across the board, stock futures dropped instantly after news broke Wednesday.

The Labor Department's core Consumer Price Index, which excludes the volatile food and energy components, increased 0.3 percent in January, while economists polled by Reuters had forecast an increase of 0.2 percent. Signs of stability have eased fears that the market was on the verge of a major decline.

If the USA economy fails to show any meaningful uptick in inflation as now feared, that could tie the Fed's hands when it comes to interest rate hikes and drag the dollar lower.

According to the data released by the US Labor Department on Wednesday, core inflation rose 0.3 percent on the month, and 1.8 percent compared with January past year, coming in ahead of consensus expectations of a dip to 1.7 percent. The S&P 500 rose 0.3% to 2,671 as of midday trading Wednesday, while the Dow remained flat at 24,640. House Democrats should have given her the boot seven years ago, and it's probably too late to undo the damage Pelosi had wreaked in this cycle already. Investors had braced for Wednesday's Consumer Price Index data since concerns about firming inflation were blamed in part for the 10-per-cent pullback in the stock market from its January 26 record high. "And people feel that because they held up during the downturn, you can come back to them and not get hammered if things turn down again", said Thomas Martin, senior portfolio manager at Globalt Investments in Atlanta, Georgia.

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The biggest gains came in the Nasdaq composite, which was up almost 1.86%, and the small-company Russell 2000 stock index, which also jumped 1.82% - its best one-day percentage gain since June.

Financial and tech stocks rallied throughout the morning pushing the indices back into the black.

"The CPI shows there is some inflation, but it was not through the roof", said Bruce Bittles, chief investment strategist at Robert W. Baird & Co in Nashville.

"Adding to the deficit now is subject to criticism not just because the economy has reached full employment and needs less, not more, demand-side stimulus", wrote Jim O'Sullivan, chief USA economist at High Frequency Economics, in a note.

Yields on the benchmark 10-year U.S. Treasury note hit a fresh four-year high.

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In the big picture, it's a welcome sign that reflects the health of the economy. U.S. stock index futures sold off sharply, while the S&P 500 index opened 0.6% lower and the dollar was boosted almost 0.5% versus the euro. The last time the 10-year closed above 3.0% was January 9, 2014.

Prices at the retail level jumped more than expected during January, raising concerns about rising inflation as well as interest rates, while a separate reported showed one of the biggest drivers of the US economy declined by the most in almost a year. Higher interest rates make it more expensive for consumers and businesses to borrow and spend and could slow growth. Wall Street will be watching another inflation indicator, the producer price index, on Thursday. "Markets are taking this more in stride". That's almost half of where it was on February 5 when it more than doubled in a single day and closed at 37.32, a record spike that exacerbated turbulence in the stock market. The food index rose 0.2% with the indexes for food at home and food away from home both rising.

The fairly strong inflation report from the Labor Department on Wednesday put more pressure on USA financial markets, which were spooked by a surge in annual wage growth in January.

"The rising inflation expectations shouldn't be considered something to panic about", Ripley adds.

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United States consumer prices jump 0.5% in January