Bonds plunge, stocks surge on spike in US CPI data

A customer buys onions from a stall at a local vegetable market in Mumbai

Jacob Deppe, Head of Trading at online trading platform, Infinox says, "A fall in inflation in January would have brought some welcome relief to Wall Street, which had been fretting about the possibility of a potential four interest rate hikes this year, rather than the previously expected three".

The Consumer Prices Index including owner-occupiers' housing costs (CPIH), the ONS' preferred measure of inflation, held steady at 2.7% in January, unchanged from the month before.

Prices of fruits, too, rose at a slower pace of 6.24 per cent last month, against 6.63 per cent recorded in the previous month.For the fuel segment, inflation was 7.73 per cent in January compared to 7.90 per cent in December.

Inflation figures for a big economic data point came out higher than anticipated Wednesday morning, causing stock futures to run in the negative before the opening bell.

U.S. weekly jobless claims, producer price index, Empire State manufacturing survey, industrial production and housing market index are due on Thursday, while housing starts, import and export prices and consumer sentiment are due on Friday.

In a note following Wednesday's report, Jim O'Sullivan at High Frequency Economics said, "We expect core inflation to rise this year, but we don't view this report alone as definitive evidence that the trend is rising".

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

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"The fact that. losses are being trimmed, suggests that the market could be slowly starting to get to grips with the new higher inflation environment reality", said Fiona Cincotta, market analyst at City Index.

The energy index rose 3% in January, with the increase in the gasoline index more than offsetting declines in other energy component indexes.

If long-dormant inflation spikes, that means interest rates, which are already on the rise, will go up at an accelerated rate.

More importantly, average hourly wages jumped 2.9 percent on an annual basis in January, the largest rise since June 2009. The cumulative growth in these three sectors during April-December 2017 over the corresponding period of 2016 was 2.8, 3.8 and 5.1 percent respectively.

The Labor Department said its consumer price index climbed by 0.5% in January after edging up by a revised 0.2% in December. We see downside risks, while still expecting the core to round up to 0.2%.

Interest rates have been historically low for years.

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