Price Increase Overlapping with COVID-19 Base Effect
Stock Market Expected to Weaken and Bond Yields to Rise Amid Fed Monetary Policy Change Concerns
[Asia Economy New York=Correspondent Baek Jong-min] The US Consumer Price Index (CPI) for April soared by 4.2% compared to the same period last year. This level exceeded experts' expectations of a 3.6% increase. As US inflation rises beyond expectations, concerns are growing that the Federal Reserve (Fed) may withdraw its accommodative monetary policy earlier than anticipated, leading to a weak start for the US stock market.
The April CPI released on the 12th (local time) reflected the base effect from last year's COVID-19 pandemic and inflation due to economic recovery, soaring to the highest level in 12 years.
The CPI also rose 0.8% compared to the previous month, significantly surpassing the expected 0.2% increase.
The core CPI, which excludes volatile sectors such as fuel and food, also surged by 3% year-over-year. The expected figure was 2.3%. The core CPI rose 0.9% compared to the previous month. Compared to the prior month, the core CPI's rate of increase was higher than that of the overall CPI.
CNBC reported that the April CPI increase was the steepest since 2008.
There is also analysis that the core CPI, which the Federal Reserve (Fed) closely monitors, soaring by 3% signals a red light for the Fed's inflation control targets.
The Fed has consistently emphasized that it will tolerate temporary inflation above 2% and that the price increases are transitory.
However, shortages of semiconductors, fuel, and lumber, along with rising prices of raw materials such as copper and iron ore, are raising concerns that inflation will not remain a temporary phenomenon.
According to the American Automobile Association (AAA) on the day, the average gasoline price in the US exceeded $3 per gallon for the first time since 2014.
As concerns that inflation is higher than expected are confirmed, capital markets are reacting immediately.
After the CPI announcement, Dow Jones Industrial Average futures and Nasdaq futures all widened their losses. Nasdaq futures are down 1.3%.
The 10-year US Treasury yield surged to 1.65%.
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
