Inflation
US consumer prices surpassed economists’ expectations, rising by 4.2% in April, above their level 12 months ago.
The news could further concerns around the possibility of oncoming inflation.
The 4.2% is particularly drawing the attention of investors, economists and analysts as high demand brought about through the vaccine roll-out and other factors could lead to a surge in prices.
It is the highest level of inflation since 2008 and well above March’s figure of 2.6%.
“What we are seeing is a perfect storm of supply and demand side factors, from monetary and fiscal stimulus boosting consumer spending, to supply bottlenecks related to the pandemic which are increasing costs,” said Kevin Lester, CEO of Validus.
It poses new challenges to Joe Biden, as well as the Fed, as they have been trying to inject life into the US economy following the coronavirus pandemic.
US stocks
The US markets suffered in the aftermath, with the Dow Jones falling 0.6%. And though that may sound relatively measured, at its current girth that equates to a 200-point collapse, sending the Dow under 34,100 for the first time in 9 days.
“The markets have been hovering around all times highs with a lot of the reopening trade already priced in. So it’s not out of the question that the outsized inflation read could bring us back down to earth a bit,” said Mike Loewengart, managing director of investment strategy at E-Trade, told CNBC.
“Keep in mind the Fed has made it clear that it won’t let inflation increases necessarily sway it from its easy money policies and further any jumps like this could be transitory. So is this a trend? That remains to be seen,” Loewengart said.
Tech shares in particular, have come under pressure in recent weeks and months.
Dollar
The dollar went in the other direction to the Dow, adding 0.4% against the pound and 0.5% against the euro.
“The greenback’s gains help explain why Europe didn’t follow the US markets lower, instead strengthening their own hand as the session went on,” said Connor Campbell, financial analyst at Spreadex.