Strong inflation data spooks Wall Street

Stocks fall amid fears of faster interest rate hikes

US stocks fell yesterday, after three days of gains, as strong inflation data fanned fears of faster interest rates hikes, while an unexpected fall in January retail sales raised concerns about economic growth.

The inflation data sent benchmark US 10-year Treasury yields to a session high of 2.8820 per cent, making bonds more attractive than stocks.

The Labour Department said its Consumer Price Index increased 0.5 per cent last month as households paid more for gasoline, rental accommodation and health care. Economists polled by Reuters had forecast an increase of 0.3 per cent.

Excluding the volatile food and energy components, the CPI shot up 0.3 per cent, the largest increase since January 2017.

However, the year-on-year rise in the so-called core CPI was unchanged at 1.8 per cent in January.

Separately, a report showed US retail sales decreased 0.3 per cent last month, the biggest fall in nearly a year and a surprise drop compared with economists’ expectations of a 0.2 per cent rise.

“In some ways you would say this is the worst possible number for US equities: extremely weak US retail sales and a higher CPI. I think there is less to the numbers than meets the eye, however,” Steven Englander, head of research and strategy at Rafiki Capital in New York, said.

“It does play into the fears that we are getting into a different inflation regime than we were before. The last ten years was below target inflation and now the expectations are adjusting upwards, which means the Fed is not as friendly.” By 9:34am ET, the Dow Jones Industrial Average was down 0.29 per cent, at 24,568.22.