Inflation Targets Above Expectations, Spooking Markets

Inflation Targets Above Expectations, Spooking Markets

The possibility of creeping inflation showed up Wednesday in the bond market, where years of low returns have encouraged investors to put their money into stocks instead of steadier bond yields.

"I would argue there is both a stock market and a bond market bubble", Greenspan said Wednesday at a talk at the American Enterprise Institute.

The US dollar fell against a basket of major world currencies after the Labor Department said its highly anticipated Consumer Price Index increased 0.5 per cent.

Fed officials would like to see inflation consistently above 2% to justify a faster pace of interest rate increases. Still, the year-on-year rise in the core CPI was unchanged at 1.8 per cent in January.

In January 2018, all items inflation on a year-on-year basis was highest in Kebbi (18.55 per cent), Nasarawa (18.49 per cent) and Bauchi (18.01 per cent), while Delta (12.77 per cent), Kogi State (13.28 per cent) and Anambra (13.34 per cent) recorded the slowest rise in headline year-on- year inflation.

Today's CPI data showed downward pressure on inflation from a lesser increase in fuel prices than a year ago.

They are literally pointing at one month's worth of data to claim that inflation is coming to get us.

MSCI's all-country world index of stocks in 47 countries gained 1.42 per cent while the pan-European FTSEurofirst 300 index of leading regional shares rose 1.03 per cent to close at 1,469.00.

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

Bank of England policymakers have pointed to rising wages as a possible reason to increase rates, although headline data still shows average growth in weekly earnings well below the rate of inflation, squeezing on living standards.

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On Wednesday, while yields climbed, the benchmark 10-year Treasury note had not yet risen significantly above 2.90 in yield, a level that was closely watched.

CPI measures the composite changes in the price of consumer goods and services purchased by households, such as transportation, food and medical care, over a period. The company has signed a revised £30m deal to buy various United Kingdom health facilities management contracts from bust services group Carillion. However, the markets sold off sharply after the release of the US inflation report.

He said Wells Fargo remains bullish on the consumer side this year, even though the first look at consumption in January was not what it was expecting.

All it took was one hot inflation report to convince the bond market that the Federal Reserve might really raise interest rates three or more times this year and several more next year. President Donald Trump's tax cuts are widely expected to trigger faster growth and more inflation this year, which could backfire if the economy gets too hot.

Faster-than-projected US inflation and an unexpected decline in retail sales at the start of the year may cause some indigestion on Wall Street. 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.

Analysts said worries about the CPI report also were countered by disappointing retail sales data, showing an unexpected 0.3 per cent drop last month, which could weaken the case for more aggressive Fed tightening. The Fed is then expected to hike in the second and third quarters, taking rates to 2.00-2.25 percent by end-2018.

The fairly strong inflation report from the Labour Department on Wednesday could 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.

Another reading is the Producer Price Index (PPI), which measures prices from the seller's point of view.