NEW YORK (Reuters) - U.S. consumer prices rose solidly in January, leading to the biggest annual increase in inflation in 40 years, which could fuel financial markets speculation for a 50 basis points interest rate hike from the Federal Reserve next month.
The consumer price index gained 0.6% last month after increasing 0.6% in December, the Labor Department said on Thursday. In the 12 months through January, the CPI jumped 7.5%, the biggest year-on-year increase since February 1982.
That followed a 7.0% advance in December and marked the fourth straight month of annual increases in excess of 6%. Economists polled by Reuters had forecast the CPI rising 0.5% and accelerating 7.3% on a year-on-year basis.
STORY:
MARKET REACTION:
STOCKS: S&P e-mini futures extended losses were down 0.94%, pointing to a weak open on Wall Street
BONDS: Yields on benchmark 10-year notes rose to 1.9788%. Two-year Treasury yields rose to 1.4361%
FOREX: The dollar index turned 0.35% higher
COMMENTS:
JOE SALUZZI, CO-MANAGER, TRADING, THEMIS TRADING, NEW JERSEY
“That's more than expected. So now the market is going to be worrying - are we getting a 50 basis point hike instead of a 25? And the whole story of how many we're going to get, how often it's going to be and what's the pace of rate hikes.”
“The reason we don't know is if it's supply or demand driven still. Part of it is supply driven. And if that kind of works itself out, then it's more of a temporary thing and it will come down.”
“The hawkishness is built into the market at this point. It's in there. So that's why I'm kind of surprised that they sold off as much as they did. I wouldn't be surprised if we see a bounce back rally come mid-day today in the stock market.”
ART HOGAN, CHIEF MARKET STRATEGIST, NATIONAL SECURITIES, NEW YORK
"The data obviously came in a bit hotter-than-expected but people were expecting a hot number to begin with, so it was pretty well priced into the market because everyone has been talking about inflation."
"So at this one point in time, it doesn't sway the market in terms of what the Fed is going to do in March."
"We also have to look at the way the market was set up before the data, three in the last four days were positive and you are coming from a place where everyone put inflation worries in the back burner for a bit and focused more on better corporate earnings."
"Markets have been very constructive leading up to this news, especially with the Nasdaq retracing about half its losses from January lows, so we are certainly at a place where the reaction function has a downside to it."
PETER CARDILLO, CHIEF MARKET ECONOMIST, SPARTAN CAPITAL SECURITIES, NEW YORK
“CPI came in a bit on the high side, and it doesn’t suggest inflation is peaking anytime soon. It might mean the Fed could get more aggressive. The jury is still out whether we’ll have a 25-basis-point or 50-basis-point rate hike in March.”
“Obviously, this means (10-year Treasury yields) will test the 2% pretty quickly, and the dollar is strengthening.”
“I would say inflation will peak in the beginning of the fourth quarter. There are still bottlenecks out there. The real test is wages. Last week’s employment data suggests salaries are taking off. That’s structural.”
“We’ll see in February employment data to see if there’s another increase in wages. That could the key point as to whether the Fed gets more aggressive.”
(Compliled by the global Finance & Markets Breaking News team)