What investors found most unsettling in the January consumer price index, which came in hotter than expected , is the core inflation reading. “The most troubling thing to me is that the core inflation rate in the last three months has shot up,” said Komal Sri-Kumar, president of Sri-Kumar Global Strategies. The January consumer price index that came out Tuesday showed a rise of 0.3% for the month, and 3.1% on a 12-month basis, according to the Bureau of Labor Statistics on Tuesday. Economists polled by Dow Jones were anticipating a 0.2% monthly gain and a 2.9% annual increase. But some investors were especially troubled by the increase in core CPI. That number, which excludes volatile food and energy prices, jumped 0.4% last month, and 3.9% from the year-ago period. It represented an acceleration on a monthly basis from December, when the core reading rose by 0.3% for the month and 3.9% on a yearly basis. Economists were anticipating respective increases of 0.3% and 3.7%, according to Dow Jones consensus estimates. “The core inflation rate in the last three months has accelerated sharply,” Sri-Kumar said. “And that is a danger signal because it is saying to you that it is going to remain elevated during the coming months.” Stocks tumbled Tuesday following the report, with the Dow Jones Industrial Average dropping 500 points, or 1.3%. The S & P 500 fell 1.4%, while the Nasdaq Composite slid 1.7%. Rate cut expectations from the Federal Reserve moved out to later in the year. Markets are currently pricing in an 6.5% chance of a quarter percentage point cut in March, and a 35% likelihood in May, according to the CME FedWatch Tool . That’s down from expectations of a 16% and 52% chance of a quarter point cut in the prior day, respectively. “There is no rate cut in March,” Sri-Kumar said. “A rate cut is coming when something breaks within the system.”
Here’s the most troubling part for market bulls in the CPI report
Feb 13, 2024
