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Market Wire - US Inflation Rises Faster Than Forecast, Lifting Odds on Steeper Fed Tightening Trajectory

CalendarFebruary 10, 2022
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Karl Schamotta - Chief Market Strategist, kschamotta@cambridgefx.com

US consumer prices recorded the fastest annual increase since 1982 in January - and showed no sign of peaking as month-over-month momentum remained high. According to data released by the Bureau of Labor Statistics this morning, the headline consumer price index climbed 7.5 percent from the same period last year, up a seasonally-adjusted 0.6 percent from December.

Goods continued to drive gains: Rising prices for cars, furniture, household appliances, and other long-lasting goods continued to power the headline index higher, defying a post-pandemic adjustment to the spending basket used to calculate overall inflation. Durable goods posted a 1.2 percent month-over-month increase.

But services began to catch up: Services prices jumped 0.6 percent in January from the prior month, essentially doubling the pace recorded in December - and suggesting that inflation pressures are spreading into the broader economy.

And core prices kept climbing: With highly-volatile food and energy components excluded, prices climbed 6 percent year-over-year, up 0.6 percent over December’s print.

Traders raised bets on a steeper liftoff: With a 25-basis point hike fully discounted, odds on a bigger 50-basis point move at the Fed’s March meeting climbed from just over 30 percent toward 50 percent in the minutes after the release. Equity futures markets, which were positioned for a year-over year number closer to 7.2 percent, tumbled, while 10-year Treasury yields popped higher. The dollar climbed against its major rivals.

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