Stocks slump, dollar jumps as US inflation runs hot

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LONDON — Stock markets hit reverse while the dollar shot higher Tuesday after data showed that US inflation slowed less than expected.اضافة اعلان

The annual consumer price index (CPI) slowed slightly in August to 8.3 percent from 8.5 percent in July, the Labor Department said in a highly anticipated report that the Federal Reserve is watching closely.

However, the CPI rose 0.1 percent on a monthly comparison in August, after holding flat in July, according to government data Tuesday, a disappointing result amid widespread expectations that inflation would fall in the month.

The dollar, which had fallen against its major rivals in anticipation of a significant slowdown in US inflation lessening pressure on the Fed to continue aggressively raising interest rates, shot higher.

“Both headline and core US CPI were substantially hotter than expected in August,” said market analyst Jay Zhao-Murray at Monex.

He said this was “leading currency and fixed income markets to embark on a swift and dramatic reversal from recent price action, where traders and investors had largely positioned themselves for a softer inflation print”.

He pointed to core inflation that excludes volatile energy and food prices, which is what Fed policymakers pay particular attention to. This rose by 0.6 percentage points month-on-month, compared to a 0.3-point gain in July.

While markets were already largely pricing in another 75-basis-point interest rate hike by the Fed at its next gathering, there had been hopes that passing the inflation peak would allow the Fed to relent.

However, the inflation figures were “hotter than expected in August and put a chill on some of the peak inflation/peak hawkishness/soft landing chatter”, said analyst Patrick O’Hare at

Stocks, which had rebounded in recent days on hopes that a peak in inflation would allow a rapid end to hawkish rate hikes and thus avoid a recession and attain a “soft” landing of the economy, abruptly turned lower.

Gains in Europe swiftly turned to losses and Wall Street plunged.

In late-morning trading, the Dow was down 2.7 percent while the S&P 500 slumped 3.1 percent, and the tech-heavy Nasdaq Composite tumbled 4.1 percent.

Fed boss Jerome Powell has indicated the rate increases would continue until inflation is tamed.

Zhao-Murray said market expectations regarding the Fed’s next rate hike had hardened following the inflation data.

While some were forecasting the possibility the Fed would drop to a half-percentage-point hike, now a 0.75-point increase is seen as the floor and some are forecasting a one-point hike.

Market analyst Michael Hewson said Tuesday’s core inflation figures mean more aggressive rate hikes will be needed to tame rising prices.

“While the narrative of peak inflation may well be still valid, getting it down from these levels is likely to be a much tougher battle,” he said.

Inflation has soared around the globe this year owing to sky-high energy and food bills.

This has been caused to a large extent by supply constraints after economies reopened from pandemic lockdowns and in the wake of Russia’s invasion of Ukraine.

The dollar has soared as the Federal Reserve moved earlier and more aggressively than other central banks to raise interest rates and contain inflation.

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