The consumer price index came in just as hot as expected in February, as the CPI inflation rate hit a 40-year high. Dow Jones industrial average and Nasdaq 100 futures remained solidly lower after the CPI report in early Thursday stock market action.
The CPI rose 0.8% from the prior month and 7.9% vs. a year ago, the biggest annual gain since January 1982, the Labor Department said. The core CPI, which strips out volatile food and energy categories, rose 0.5% from January. The annual core inflation rate rose to 6.4%, highest since August 1982.
Core inflation matched expectations. The overall CPI exceeded forecasts for a 0.7% monthly rise, but the 7.9% annual rise was in line with views.
Jobless Claims
Separately, the Labor Department reported that initial claims for jobless benefits rose 11,000 to 227,000 in the week through March 5, slightly worse than the 218,000 expected.
Average hourly earnings are up a strong 5.1% from a year ago as the job market has tightened, Labor Department data shows. But real, or inflation-adjusted, wages still aren't close to keeping up with inflation.
The Fed wants to minimize the risk that inflation pressures will become entrenched as household cost pressures push employees to demand higher wages, leading to more price increases.
Federal Reserve Rate Hikes
Russia's Ukraine invasion, which began Feb. 24, threatens the supply of key commodities, from oil and natural gas, to aluminum, nickel, wheat and fertilizer. That's exacerbating the biggest broad-based inflation rise in a generation.
Covid-related supply constraints and high demand, fueled by vaccines and and fiscal stimulus, sparked last year's inflationary surge. Now the risk is that inflation will stay elevated as it feeds on itself. Industries that have struggled to keep up with demand and facing increases in their own input costs, including labor and transportation costs, continue to pass along price hikes.
The Fed, which set its benchmark interest rate near zero in March 2020 as unemployment reached double-digits, is finally to begin raising rates with the jobless rate at 3.8%. Federal Reserve chief Jerome Powell said last week that he'll back a quarter-point hike at next Wednesday's meeting. Ahead of the CPI inflation data, markets were pricing in 70% odds for at least six quarter-point hikes this year, according to CME Group's FedWatch page.
The European Central Bank on Thursday unexpectedly announced it will wind down asset purchases faster, as it sees even-hotter inflation in 2022.
Dow Jones, Treasury Yields Reaction To CPI Report
Dow Jones futures were off 1.2% after the CPI report. S&P 500 futures backtracked 1.25% and Nasdaq 100 futures 1.5%. That's about were they were before the 8:30 a.m. ET release.
Russia's Ukraine invasion threw gas on the inflationary problem in the U.S. and around the globe, torching the stock market's support legs. As of Wednesday's close, the Dow was off 9.5% from its record Jan. 4 close. The S&P 500 has fallen 10.8% from its peak, while the Nasdaq composite has tumbled 17.5% from its peak on Nov. 19.
Be sure to read IBD's The Big Picture column after each trading day to get the latest on the stock market trend and what it means for your trading decisions.
After the CPI report, the 10-year Treasury yield was up 3 basis points to 1.98%.
CPI Inflation Report Details
Prices for used cars and trucks dipped 0.2% on the month, but rose 41.2% from a year ago.
Demand for used cars has gotten a boost amid the global chip shortage that has snagged production for new autos. Prices for new vehicles rose 0.3% on the month, while rising 12.4% from a year ago.
Energy prices rose 3.5% on the month and increased 25.6% from a year ago.
Prices for food away from home rose 0.4% in February vs. January, while rising 6.8% from a year ago. Prices for food consumed at home increased 1.4% last month and 8.6% from a year ago.
Prices for medical services rose just 0.1% on the month, bringing the year-over-year increase to 2.4%.
Meanwhile, shelter prices rose 0.5% in February, as owner's equivalent rent rose 0.4%.
