Shares fell on Friday after new government data showed inflation had entered May was up 8.6% from a year agothe sharpest rise in consumer prices since 1981.
The S&P 500 fell 92 points, or 2.3%, to 3,926 at 10:53 a.m. Eastern time. The Dow Jones Industrial Average fell 2% and the high-tech Nasdaq plunged 3%. In the absence of a major rebound on Friday, the main U.S. benchmarks are heading for their eighth week of losses in the last nine weeks.
The jump to the Consumer price index, a wide basket of goods and services, was mainly due to rising fuel, food and housing prices, the Labor Department said Friday. The record-breaking broke investors’ hopes of cooling inflation, replacing them with concerns about stagnation as central banks continue to raise interest rates in an effort to curb inflation.
The US Federal Reserve meets for two days next week, and most economists and analysts expect the central bank to increase its main debt rate by half a point more. While the Fed no longer uses CPI data to frame its policy, analysts say higher-than-expected inflation figures are a strong argument for further rate hikes.
“This report influences the outlook for monetary policy in September and beyond,” Bill Adams, chief economist at Comerica Bank, said in an email to clients. “The persistence of high inflation in May strengthens the argument for additional half-percentage point rises after July and weakens the argument for a pause in the rises in September.”
Aggressive interest rate hikes are part of a growing global tide where central banks are eliminating the ultra-low interest rates that supported debt, economic growth and stock prices during the pandemic and also flooded the pandemic. markets with investments that seek higher returns. Now, central banks are concentrating on slowing growth to stifle high inflation for four decades.
Rising gasoline prices are affecting American drivers
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The risk is that these moves may cause a recession if they are too aggressive. And higher interest rates tend to drive down stock prices.
An important factor in inflation is higher gasoline prices, which have been putting more pressure on both businesses and households, increasing the pressure on budgets. Crude oil prices have risen by about 60% during the year. Much of the jump is due to The Russian invasion of Ukraine.
Earlier on Friday, the AAA car club reported that the national average of one gallon of regular gasoline in the United States reached $ 4.99. In California, the average price per gallon is $ 6.42, according to the AAA.
The benchmark U.S. crude oil gained 82 cents to $ 122.33 a barrel in e-commerce on the New York Stock Exchange. It yielded 60 cents to $ 121.51 on Thursday.
Brent crude, the international trade price standard, added $ 1 to $ 124.07 a barrel.
Haircut monitoring
While consumer spending grew at an annual rate of 3.1% from January to March, that trend could soon be reversed as rising prices continue to strain U.S. households, economists said. .
“Rising gas prices and high inflation are also taking their toll on consumers,” said John Leer, chief economist at Morning Consult. “So far, consumer pessimism has not led to a decline in consumer spending, but high prices are consuming consumer savings, which could be the catalyst for a real contraction in real consumer spending.”
Another telling sign, Adams of Comerica noted, is the cost of haircuts, which rose 0.5% in May and have risen more than 6% this year.
“Economists are closely following this price because a haircut is largely the same service today as it was 10, 20 or 50 years ago, and is similar across countries,” he explained. This makes it useful for measuring inflation.
“Consistent with the rest of the report, it shows that inflation did not moderate in May and is too high,” Adams said.
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