Coverage: Consumer price index is on the rise

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

Jeff Cox of CNBC.com had the story:

The Consumer Price Index rose 0.5 percent last month against projections of a 0.3 percent increase, the Labor Department reported Wednesday. Excluding volatile food and energy prices, the index was up 0.3 percent against estimates of 0.2 percent.

The report indicated that price pressures were “broad-based,” with rises in gasoline, shelter, clothing, medical care and food.

Markets reacted sharply to the news. The Dow opened more than 100 points lower, but reversed those losses after the first half-hour of trading. Government bond yields also turned higher, with the benchmark 10-year note most recently trading near 2.88 percent, a gain of about 3.8 basis points.

Investors also began to price in the likelihood that the Federal Reservewill raise interest rates at least three times this year.

Jim Puzzanghera of the Los Angeles Times reported that the markets rebounded after initially dropping due to the number:

Although the consumer price index is not the most important measure of inflation, its release Wednesday took on outsized importance as investors scrambled for any new details about the direction of the economy.

The report roiled stocks at first.

Futures for the Dow Jones industrial index were up about 150 points before the Labor Department released the consumer price index. The higher-than-expected inflation led those Dow futures to drop significantly, indicating the index would open lower.

The Dow opened down more than 100 points but then turned positive, closing up 253.04 points, or 1%, at 24,893.49. . The broader Standard & Poor’s 500 index increased 1.3%, and the technology-heavy Nasdaq composite was up nearly 1.9%.

Concerns that inflation is accelerating, which could lead to higher interest rates, caused last week’s severe stock market declines. And the new data on consumer prices rekindled some of those concerns Wednesday, but was tempered because the annual inflation rate held steady and retail sales declined.

Katia Dmitrieva of Bloomberg News reported that the inflation number doesn’t mean much pain for the economy:

While the retail figures support analyst forecasts that consumption will slow this quarter on the heels of the biggest quarterly advance in more than a year, consumer spending will likely be buttressed this year by wage growth, a tight labor market and tax cuts.

“These reports tell two stories: one, that the real economy may not be as strong as we thought, but also that inflation may be a bit higher,” said Paul Ashworth, chief U.S. economist for Capital Economics. “The Fed looks like they’re leaning towards the inflation part of the story.”

Fed funds futures show that the market is now pricing in two full quarter-point increases through the central bank’s September meeting, and that the overall amount of tightening being anticipated for this year and next has rebounded close to levels seen earlier in February.