Per reporter: Wen Qiao Per editor: Lan Suying
Image source: Visual China-41N889513846
On February 10, local time, data released by the U.S. Bureau of Labor Statistics showed that the U.S. Consumer Price Index (CPI) rose 7.5% year-on-year in January, exceeding expectations by 7.3%, the largest increase since March 1982, and the data reached or exceeded 5% for nine consecutive months. Excluding volatile energy and food prices, the core CPI rose 6% year-over-year and 5.9% higher than expected.
Looking at the main segments, housing costs, which account for about a third of the CPI, rose 4.36% year-on-year, the highest since June 1991; rental costs rose 3.76% year-on-year, the highest since July 2019; and food costs rose by 7%. Andrew Hunter, senior U.S. economist at Capital Economics, said the rise in food and housing prices suggested inflation was accelerating cyclically and that the trend was unlikely to weaken in the short term due to unusually tight labor market conditions.
"While we still expect a more favorable base effect this year, with supply shortages partially alleviated, pushing core inflation lower, it will remain well above the Fed's target for some time," he added.
After the release of the data, the three major U.S. stock indexes opened sharply lower, the S&P 500 index and the NASDAQ both fell more than 1% at the opening, and the Dow quickly fell 250 points. As of press time, the three major stock indexes have narrowed their losses, with the S&P 500 down 0.58%, the NASDAQ down 0.68%, and the Dow down 0.39 or 140.51 points.
At the same time, inflation soared as U.S. Treasury yields soared, with 10-year Treasury yields topped 2 percent, their highest level since August 2019. As of press time, the indicator reached 2.022%. In addition, NASDAQ futures and S&P 500 futures also fell in response, with declines of 0.84% and 0.46% respectively as of press time.
As the US January CPI data once again exploded, the market's pricing for future rate hikes has also become more aggressive.
According to the Chicago Mercantile Exchange, the probability of a 0.5 percentage point rate hike by the Fed in March rose to 44.3 percent after the release of inflation data in January, compared with 25 percent previously; the probability of six rate hikes this year (25 basis points each) rose to about 63 percent, compared with 53 percent previously.
"A 2% yield on a 10-year Treasury note, coupled with a higher-than-expected inflation rate, could lead to a more aggressive Fed tightening policy, which is bad for overall stock prices, especially those of companies such as the tech sector," said Kathy Bostjancic, chief financial market economist at Oxford Economics, saying that while current economic growth and earnings are healthy, more aggressive Fed policies could significantly slow economic growth.
In addition, a separate report released by the U.S. Bureau of Labor Statistics on Thursday showed that in the week ended Feb. 5, the number of people applying for unemployment benefits totaled 223,000, down 16,000 from the previous week and lower than the expected 230,000. This is the third consecutive week of improvement in the data this year and the lowest since Jan. 1.
Economists say strong demand for workers will be a marker of the U.S. labor market in 2022, and the figure is expected to continue to decline as the impact of the Omiljunn variant fades on the labor market.
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