Inflation data rises faster than expected, roiling investors

Effects of the Rising US Inflation on Markets & the US Dollar

Effects of the Rising US Inflation on Markets & the US Dollar

Inflation rose 2.1 percent from a year earlier and core prices increased 1.8 percent.

Torsten Sløk, chief global economist at Deutsche Bank, noted in an email on Tuesday that economists surveyed by Bloomberg expect core inflation to average 1.8% in the second quarter of the year, up from 1.5% in the first quarter.

US consumer prices rose considerably more than expected in January, stoking fears that inflation is about to turn dangerously higher.

Such increase in factory outputs would lead to an increase in inflation rate and in return would boost the economy of the nation.

Stocks and bonds are engaged in a weeks long battle, as the equity market becomes less attractive to investors who are seeking safer investments in the bond market. Core CPI increased 1.8% vs. estimates of 1.7%. The Dow Jones industrial average ticked up 10 points by mid-day.

Fear about inflation sparked the market sell-off that began February 2, when the Labor Department reported that wages grew at the fastest pace in nine years. And while the University of MI measure of household inflation expectations in the United States edged up to 2.5% in January, this is still below its average level since the financial crisis.

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In January, the main upward pressure came from the cost of entrance fees to recreational venues such as zoos and gardens, for which prices fell by less than they did a year ago. Fears that trade union demands will push Germany's inflation rate up sharply look misplaced. That strong pay number spooked investors, sparking a sell-off that knocked stocks down 10% from their January 26 peak and into correction territory for the first time in two years. That was biggest monthly gain since 1990.

Clothing costs jumped 1.7 percent in January after three months of declines. Unsurprisingly the selloff in the United States equity markets also resumed, the Dow futures and the S&P futures were trading down just shy of 1% within half an hour of the release, however we are starting to see signs of those losses being pared with both the Dow & S&P futures down some 0.75%.

Gasoline prices rose 5.7 percent last month, pushing up the headline index. Housing prices remained firm, and surged 8.3% during the month.

Ben Brettell, senior economist at Hargreaves Lansdown (Frankfurt: DMB.F - news), said following the latest inflation: "Inflation's now been above target for 12 straight months".

Inflation shows a slight slowdown for January giving a sign of relief for consumers.

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