Inflation Returns With Higher Than Expected Reading That Could Tank Stock Market

In January, inflation reportedly increased more than expected, which gave the Fed even more motivation to keep interest rates low.

The Bureau of Labor Statistics said Wednesday that the consumer price index, which is a general indicator of prices for goods and services across the U.S. economy, increased by a seasonally adjusted 0.5% for the month, bringing the annual inflation rate to 3%. For 0.3% and 2.9%, respectively, they exceeded the corresponding Dow Jones projections.

Compared to December, the annual rate increased by 0.1 percentage points.

With volatile food and energy costs excluded, the CPI increased by 0.4% for the month, resulting in a 3.3% 12-month inflation rate. This contrasted with expectations of 0.3% and 3.1%, respectively. Additionally, the yearly core rate increased by 0.1 percentage points from December.

Following the news, markets fell precipitously, with bond yields rising substantially and futures linked to the Dow Jones Industrial Average falling more than 400 points.

According to the BLS, shelter costs accounted for almost 30% of the total rise and increased by 0.4% on a monthly basis, continuing to be a problem for inflation.

The category’s measure, which asks homeowners to estimate how much they could earn if they rented their houses, rose by 0.3% each month and 4.6% annually.

A 15.2% increase in egg prices due to persistent avian bird flu issues that have compelled producers to kill millions of chickens caused a 0.4% increase in food prices.

Approximately two-thirds of the increase in food-at-home prices, according to the agency, was caused by the biggest increase in egg prices since June 2015. Over the past year, the price of eggs has increased by 53%.

Tomatoes and other fresh vegetables dipped 2% and 2.6% in January, respectively, while nonalcoholic beverages saw a 2.2% increase over the previous 12 months.

The annual gain was 11.8% due to a 2.2% increase in used automobiles and trucks and a 2% increase in motor vehicle insurance, while new car costs remained unchanged.

While gas prices increased 1.8%, energy prices increased 1.1%.

The report was released a day after Powell hinted that the central bank would put interest rate decisions on hold for some time.

Powell told Senate Banking Committee members that he believes the Fed should not rush to cut rates as it assesses inflationary progress and as President Donald Trump continues to pursue plans to impose import tariffs.