Stocks drop on inflation data to close worst week of year

NEW YORK — Stocks sank on Wall Street and closed out their worst week since early December. The S&P 500 fell 1.1% Friday to cap its third straight loss.

St cks have dropped through February as reports on inflation, the job market and spending by shoppers have come in hotter than expected. That’s forced Wall

oStreet to raise its forecasts for how high the Federal Reserve will have to take interest rates. The latest reminder came Friday when the measure of inflation preferred by the Fed came in higher than expected. Higher rates pressure the economy and investment prices. Higher rates can drive down inflation, but they also raise the risk of a recession because they slow the economy. They likewise hurt prices for stocks and other investments.

Friday’s report said prices were 4.7% higher in Janu- ary than a year earlier, after ignoring costs for food and energy because they can swing more quickly than others. That was an accel- eration from December’s inflation rate, showing the wrong momentum, and it was higher than economists’ expectations for 4.3%.

It echoed other reports from earlier in the month that showed inflation at both the consumer and whole- sale levels was higher than expected in January.

Other data Friday showed that consumer spend- ing returned to growth in January, rising 1.8% from December. That’s pivotal because spending by consumers makes up the largest piece of the economy. A separate reading on sentiment among consumers came in slightly stronger than earlier thought, while sales of new homes improved a bit more than expected.

Such strength paired with the remarkably resilient job market raises hope that the economy can avoid a recession in the near term.

But it can also feed into upward pressure on inflation, and Wall Street worries it could push the Fed to raise rates even higher and keep them there longer.