In­fla­tion rises 2.1 per­cent, faster than ex­pected

The Oklahoman - - RETAIL - BY HEATHER LONG

The Wash­ing­ton Post

WASH­ING­TON — The con­sumer price in­dex, which mea­sures how quickly prices are go­ing up in the U.S. econ­omy, rose at a faster than an­tic­i­pated 2.1 per­cent in Jan­uary com­pared to a year ago, trig­ger­ing fears of an­other rocky run on Wall Street.

The Dow fell more than 100 points at the open, but traders ul­ti­mately dis­missed the news and the Dow closed up over 250 points.

In­fla­tion around 2 per­cent is still very low, but Wall Street traders worry that this could be the be­gin­ning of a quick run up in wages and prices. There’s a big re­assess­ment go­ing on about what the future holds for the U.S. mar­kets and econ­omy.

While no one is talk­ing about an im­me­di­ate down­turn for the econ­omy, the pic­ture looks a lot murkier head­ing into 2019, caus­ing in­vestors to ques­tion whether stocks should be so high. 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.

The monthly La­bor Depart­ment re­port Wed­nes­day showed the prices were ris­ing for just about ev­ery­thing: gas, rent, clothes, med­i­cal care and food. Amer­i­cans are es­pe­cially pay­ing more at the pump, with gas prices jump­ing 8.5 per­cent in the past year and trans­porta­tion ris­ing 4 per­cent.

“The data raise the al­ready high like­li­hood that the Fed will be lift­ing rates again next month, un­less tur­moil in the fi­nan­cial mar­kets in­creases sig­nif­i­cantly,” said Jim O’Sul­li­van, chief U.S. econ­o­mist at High Fre­quency Eco­nomics.

The Fed­eral Re­serve — un­der the new lead­er­ship of Trump’s ap­pointee, Jerome Pow­ell — is on track to raise in­ter­est rates three times in 2018. But if in­fla­tion con­tin­ues to pick up, in­vestors think the Fed might have to hike four times this year. Wall Street pre­dicts nearly an 80 per­cent chance of a rate in­crease in March.

“We will re­main alert to any de­vel­op­ing risks to fi­nan­cial sta­bil­ity,” Pow­ell said Tues­day at his for­mal swear­ing-in cer­e­mony as Fed chair­man.

Many traders read that as a sig­nal that Pow­ell is closely watch­ing the stock mar­ket swings. Ear­lier this month, the Dow fell more than 1,000 points in a sin­gle day.

The trig­ger was a La­bor Depart­ment re­port show­ing that wages grew at a better-than-ex­pected pace in Jan­uary. Now an­other key gauge of in­fla­tion — CPI — is show­ing a sim­i­lar up­ward trend.

“There’s a risk that this could pour fuel on the fire of last week’s mar­ket sell-off,” said Luke Bartholomew, a strategist at Aberdeen Stan­dard In­vest­ments. “That ner­vous­ness is not go­ing away.”

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